State Treasury Rejects Payments for NICUSA Computer Contract

Treasurer McCord says administration failed to follow proper legal process

Harrisburg–The Pennsylvania Treasury today informed the Office of Administration it would not make nearly $3.48 million in requested payments for computer services to Pennsylvania Interactive LLC (parent company NICUSA) due to concerns about the lawfulness and correctness of both the contract and the payments.

In rejecting four invoices submitted this year, Treasury’s Bureau of Fiscal Review cited the administration’s failure to obtain necessary approval from the Attorney General, insufficient justification of specific payment amounts requested, and an inadequate basis for granting a no-bid contract. 

“This is a case of the Corbett Administration cutting corners regarding contracting practices, inflating contract values beyond the original approved amounts, and using a no-bid process without adequately justifying the reasons. Not only is it a bad way to do business, it is outside the law, and we have an obligation to the taxpayers to reject these payments,” Treasurer Rob McCord said.

“This review arose as part of Treasury’s legal role to protect taxpayers by making sure public dollars are spent in a lawful manner. Over the past three fiscal years, our Bureau of Fiscal Review stopped more than $348 million in improper payments,” McCord added.

Treasury received four separate invoices – one each for January, February, March and another this month – totaling $3.48 million for services related to the development of the commonwealth’s new web site. After its standard review of the first three requested payments, Treasury in April asked the administration’s comptroller for additional information to explain and clarify questions it had about the charges.

After receiving the administration’s response, the Bureau of Fiscal Review could not determine that the payments would be lawful and correct, and therefore rejected them in accordance with Treasury’s statutory responsibility.

Treasury found three legal obstacles to making the payments:

• The contract had not received the proper approval from the Attorney General. The Attorney General signed off on a version of the contract last November that had cost discrepancies, calling at one point for no cost and at another for payment of about $100,000. The Office of Administration subsequently amended the contract to call for Pennsylvania Interactive LLC to be paid potentially up to $5 million. Such a substantial amendment to the contract amount requires resubmission to the Attorney General for approval, which was not done in this instance.

• The Office of Administration advised Treasury the invoice amounts were based upon a consulting services arrangement, but the invoices do not conform to any of the customary consulting services methods for determining payments due. They do not contain the names of persons or labor classifications performing services, the number of hours worked, or hourly rates, nor do they contain a fixed price associated with identified tasks that were completed by the contractor in accordance with an agreed-upon schedule. The arrangement appears to compensate Pennsylvania Interactive LLC with payments based upon the volume of Internet transactions that the commonwealth continues to conduct while Pennsylvania Interactive LLC constructs a new web portal. This methodology of payments was also omitted from the contractual materials reviewed by the Attorney General.

• The Office of Administration attempted to justify the no-bid procedures by declaring that other potential bidders that had sought similar portal construction contracts in other states, such as IBM, were not interested in bidding on the self-funded contract model that Pennsylvania was ostensibly offering.  In light of possible direct payments from the commonwealth totaling $5 million (with $3.48 million requested so far), Treasury questioned how the commonwealth concluded there would have been no other bidders had a normal procurement process accurately described the commonwealth’s interest in contributing substantial revenue to the project.

Treasury’s Bureau of Fiscal Review made several other observations about matters the administration failed to explain adequately, including apparent sweeping exemptions from existing state policy to avoid subjecting citizens to transaction fees for online services and an attempt by the administration to pay Pennsylvania Interactive LLC nearly $900,000 for services during a period when only $100,000 had been approved for services.

In addition, the contract allows for certain fees to be collected by Pennsylvania Interactive LLC through its operation of the portal to be shared with PennDOT, but then purports to classify the shared fees as not constituting PennDOT revenue.  Treasury raised concerns as to whether such classification of the fees would circumvent recognized commonwealth accounting practices for tracking and reporting revenue.

Treasury’s rejection notice advised the Corbett Administration to resubmit the Pennsylvania Interactive LLC contract to the Office of Attorney General for review of the significant amendments agreed to by the parties following the original approval by that office.

For more information, visit www.patreasury.gov.

Media contact: Gary Tuma, 717-787-2465 or gtuma@patreasury.gov

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