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In a tough spot, Otter, others hand $6 million deal to untested firm

In a tough spot, Otter, others hand $6 million deal to untested firm

Dustin Hurst
January 14, 2015
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January 14, 2015

Put in a tough position Tuesday at the Board of Examiners meeting, Gov. Butch Otter and his colleagues did the best they could.

The best they could, though, means an untested software firm will receive a $6 million contract from the state.

The Board of Examiners, overseer of some of the state’s financial matters, voted Tuesday to give Tegrit Software Ventures a deal to finish work on a benefits administration system for the Public Employee Retirement System of Idaho. The state will pay the firm $4 million for software coding, and another $2 million for maintenance and tech support after the system launches in 2016.

From the start, Otter, Attorney General Lawrence Wasden and Secretary of State Lawerence Denney, all Republicans, found themselves in an unenviable position.

In 2012, after a competitive bidding process, the state handed Tegrit Group the original PERSI contract, more than $12 million in all. Tegrit Group was an oddity, though, because it served as an investment for Michigan’s public retirement program, but also as a contractor for that state’s pension system.

Not satisfied with the return from Tegrit Group, Michigan broke apart the company, selling divisions and contracts along the way.

Idaho fell into the chaos, nearly in the middle of the contract’s time schedule.

Shortly after the sell-off, 11 former Tegrit workers and another unidentified staffer formed a spin-off, Tegrit Software Ventures, and bought the technology division from the original firm. That spin-off now holds deals with Fresno, Calif., and the state of Michigan for pension system administration and coding.

Tegrit Group, though, a hollowed-out shell of its former self, still held the Idaho contract, and was paying the spin-off for the work.

The proposal to pass the deal along presented a serious problem for Otter and company: how could the state, already reeling from other contract controversies, hand a lucrative deal to an unproven company?

State staffers did their best to assuage Otter’s concerns.

Valerie Bollinger, a buyer for the Division of Purchasing, told the panel that while the situation wasn’t ideal, passing the contract to the new company might be the best -- if not only -- option for the board.

“It is in the best interest of the state to assign this contract,” she said.

Maybe the trio of state officers didn’t have a choice. They did, of course, have other options, including continuing as-is, paying the original firm for work the spin-off is already doing, or finding a new company altogether.

Finding a new company, officials explained, would mean a lengthy bidding process and starting from scratch. Computer code, inconveniently for the state, isn’t exactly transferable among tech firms.

“These systems are unique,” Bollinger said.

Continuing with the status quo, the buyer said, could cause problems, too, because the state had no way to ensure the original company would pay the spin-off for the contracted work.

That left the risky third option.

Otter, who pledged greater oversight of state contracts after a judge invalidated an education contract last year, peppered staffers with questions about the new firm.

“Did they hedge in order to buy it?” the governor prodded. “Did they go to their savings accounts?”

The governor wanted the spin-off’s owners to have some skin in the game, so to speak. “If they mortgage their house in order to acquire their stock or their ownership, that’s one thing,” Otter said. “But if they have a note -- that’s another question. I want to know what their financial liability is.”

Luckily for the solace-seeking governor, at least one spin-off executive, Jeff Adair, leveraged his home and dipped into his savings account to acquire Tegrit Group’s tech division.

“Now we’ve got people who are truly invested,” said PERSI Executive Director Don Drum. “And really the PERSI project is a huge project for them. This is going to be a selling point for them when they go out and get new business. They are going to hang their hats on this.”

Otter, though still firing off questions, never looked back. With the assist from Denney and Wasden, Otter approved the contract with little hesitation.

He did, though, ask for progress reports from PERSI and the Division of Purchasing.

“Anytime there’s a hiccup in it … we need to hear about it immediately,” Otter said. “Any change in the climate as far as this contract goes, I want to know about it.”

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