MOORLACH UPDATE — Debate — May 14, 2013

The bidding process for the County’s information technology contracts has been about as contentious as the last one over a dozen years ago. With the lowest bidder for one of the two components of the contract just inches away from the finish line, strong forces put on a full court press to discredit a firm with some 44,000 employees. And there was fodder with which to do it. The bidder did its best to rectify the damage, clearing out its available cash balances in doing so. And, during today’s Board meeting, the vendor spent a considerable amount of time explaining the circumstances of the incident in New York City. The Voice of OC provides the set up story for this morning’s Board discussion. Apparently, I was the only Supervisor to take on the reporter’s questions. The topic certainly provided for some interesting Board drama, but it did not change the result.

Yesterday’s OC Register had an article on fire rings and it is the second piece below.

Computer Vendor at Center of Massive Fraud Scandal

By NICK GERDA

Orange County Supervisors are set Tuesday to award a large-scale computer contract to a company at the center of one of the largest municipal contract fraud cases in U.S. history.

In a deal with federal prosecutors last spring, Virginia-based SAIC, Inc. paid $500 million to authorities and admitted that it defrauded New York City on a computer contract that exploded in cost from $73 million to nearly $700 million.

The U.S. Attorney for Manhattan described the scheme, which allegedly involved tens of millions of dollars in kickbacks at taxpayer expense, as “one of the largest and most brazen frauds ever committed against the City of New York.”

High-level SAIC managers ignored multiple warnings of the fraud, the company has admitted, enabling what U.S. Attorney Preet Bharara called “a fraudsters’ field day that lasted seven years.”

The scandal prompted SAIC, which primarily does work for the federal government, to announce it would be pulling back significantly from state and local government work.

“When you venture out of your own lane, there is some uncertainty, a lack of knowledge, and maybe you’re not completely aware of the issues at hand,” the company’s chief operating officer, Stu Shea, told a newspaper. “We’ll be much more conservative in looking at state and local. It’s a hard business that has no money, and we don’t do it well. So why would we do more?”

The firm is now set to receive a $74 million contract to run Orange County’s data center and other computer services for the next five years.

Supervisor John Moorlach said he was comfortable moving forward with the contract, attributing the New York fraud to two “bad apples” among SAIC’s 40,000 employees.

“What I was told was that they recognized that there was a failure on the part of two employees and that they settled with the City of New York with a rather substantial settlement,” said Moorlach.

However, the company itself admits that higher-level managers had received warnings about the fraud, including a whistleblower complaint, yet failed to investigate.

“Some managers supervising [Program Manager Gerard] Denault and the project disregarded warning signs of possible corruption,” SAIC acknowledged as part of its agreement with prosecutors. “As a result, SAIC failed to take actions that might have detected, disrupted or curtailed the charged conspiracies, allowing the city to be victimized repeatedly and systematically for more than seven years.”

Asked about the apparent failure of SAIC’s higher-level management, Moorlach said the company did its best overall after learning of the problems.

“Every large organization is going to have this kind of activity. It’s just part of doing business,” said Moorlach. “And so you have to look at the overall picture. You have to look at the response to the matter. And I think SAIC did their best to emphasize a good customer service perspective once it was detected and correct it.”

Supervisor Todd Spitzer declined to comment, and supervisors Pat Bates, Shawn Nelson and Janet Nguyen didn’t return phone calls.

There are questions about how forthcoming the company originally was about the New York criminal case while bidding for services in Orange County.

SAIC’s “best and final offer” (BAFO) submission to Orange County on March 19, 2012 came more than a week after the fraud settlement, but apparently didn’t disclose the massive payout.

The company then sent a follow-up letter three days later to reveal the settlement, saying that while not required, the firm “feels it ethically appropriate to voluntarily disclose.”

SAIC didn’t return messages seeking comment.

The New York scandal centered around the massive CityTime project, which sought to overhaul the city’s payroll system.

SAIC took control of the effort in 2001, and within a few years, two of its top project managers were using a sole-source subcontractor, Technodyne, “as a vehicle for the payment of tens of millions of dollars” in kickbacks to themselves and others, according to the company’s admission.

By 2005, SAIC had started receiving internal warnings about the kickbacks.

“A whistleblower within SAIC filed an anonymous ethics complaint with the company alleging that Technodyne was receiving preferential treatment on the CityTime project, and that the only explanation for the conduct was that Denault had to be receiving kickbacks from Technodyne,” the company acknowledged.

But “SAIC failed to properly investigate the complaint and did not notify the city that a complaint had been made,” it acknowledged.

Then in 2006, SAIC got New York to agree to transfer responsibility for cost overruns from the company to the city, paving the way for a massive increase in the contract.

“Following the execution of Amendment 6, which was being negotiated at the time the ethics complaint was made, SAIC, under the direction of Denault, staffed the Project with hundreds of consultants hired by Technodyne, and the cost of the Project expanded dramatically, from approximately $115 million in 2005 to approximately $620 million in 2011,” the company admitted.

The move helped enable SAIC to turn a net loss on the project into an estimated $60 million in profit, according to the company.

Higher-level management essentially ignored several warnings of the fraud, SAIC acknowledges.

“In those instances in which SAIC employees on the project expressed concerns to Denault’s supervisors about the possibility that he had a corrupt relationship with Technodyne, those managers reacted with inappropriate skepticism, shifted the burden to the employees to prove their assertions, and failed to pass on the concerns to the proper company personnel for investigation,” according to the company.

In the wake of its $500 million payout, SAIC said it fired the managers who oversaw Denault and “voluntarily implemented measures designed to strengthen its compliance systems and enhance its culture of ethics and compliance.”

The company also agreed to reforms like an independent monitor and whistleblower protections.

Additionally, the case helped prompt the New York City Council to require a cost-benefit analysis before certain types of outsourcing.

Nick Berardino, president of the the Orange County Employees Association, on Monday called on supervisors to hold off on Tuesday’s vote until District Attorney Tony Rackauckas conducts a “thorough review” of the New York case.

Rackauckas should “publicly report back to the board its findings prior to the board encumbering that amount of taxpayer money,” Berardino said. “It’s the only prudent thing to do.”

The county could lay off as many as 40 of its IT employees as part of the contract, Berardino has said. County management says they would try to find the workers jobs at SAIC.

The data center contract – along with an upcoming vote on a phone and data network agreement – will be among the most expensive service contracts the county has ever awarded, and have drawn intense industry interest.

Much of that interest has come in the form of campaign contributions. Since 2009, supervisors have received at least $23,000 from the top bidders, according to campaign finance records.

You can reach Nick Gerda at ngerda, and follow him on Twitter: @nicholasgerda.

Mayors to meet as fire-ring debate expands

By DEEPA BHARATH / ORANGE COUNTY REGISTER

Orange County representatives of the regional air-quality board say they are reluctant participants in a fiery debate that has raged on for the past several weeks over whether beach bonfires should be allowed.

The South Coast Air Quality Management District got "dragged into" the fire pits issue because Newport Beach wanted to get rid of 60 fire rings on its shoreline, said Santa Ana Mayor Miguel Pulido, who represents Orange County cities on the air quality board.

Pulido has also taken the initiative to organize a "mayors-only" meeting Wednesday in Santa Ana at City Hall and a public hearing Friday in the Huntington Beach Council chambers.

"I wanted to have a mayors-only meeting to get the pulse of how different cities stand on the issue from around the county," he said. "These are my constituents. They voted for me to be on the board."

Pulido said the public hearing is meant solely "to gather input" and give residents the opportunity to comment before he makes a decision as one of 13 air quality board members. He said more than 10,000 emails have been received on the matter – with 90 percent for saving the fire pits and 10 percent for getting rid of them. The board is scheduled to vote on the matter June 7.

Huntington Beach city officials say they want to preserve the fire rings because they bring much-needed revenue into the city in the form of visitors and tourists. However, Corona del Mar and Newport Beach residents near the beach have said that the fire rings are polluting their neighborhoods, covering their vehicles with ash and causing health problems.

Newport Beach submitted an application in March to the California Coastal Commission asking to remove fire rings on its beaches. Although the Coastal Commission’s staff recommended denial because the fire pits are a free public amenity, the commission decided to wait for the air quality board’s decision on Rule 444, which pertains to wood-burning fires.

The Coastal Commission will vote on Newport’s request during its July 10 meeting, after air quality board members cast their votes.

Orange County Supervisor Shawn Nelson, who represents the county on the air quality board, said fire rings are not even part of the board’s regional plan.

"Newport Beach does not need the AQMD to tell them that standing next to the wood-burning fire is going to generate particulate matter much like standing next to a barbecue," he said. "It’s an insult to an average person to say we are going to need scientific evidence to prove that."

But going after beach bonfires is not the answer, Nelson says.

"What’s next? Are we going to shut down fireplaces and regulate camp fires and chimneys?" he said. "There needs to be a consistent logic to what we are doing. AQMD should be focused on primary distributors of air pollution, and that does not include beach fires."

The city of Newport Beach got the air quality board involved in the beach fire pits issue, he said.

"If Newport Beach wanted to clean the atmosphere, they have other alternatives," Nelson said. "There is simple technology available to do that. But they got us involved in the process."

Both Nelson and Pulido said they personally support saving the fire rings.

Newport Beach City Manager Dave Kiff said the city didn’t ask the air quality board to get involved, but just followed the necessary process by asking the Coastal Commission if the fire rings can be removed. Kiff said the city is keen to see this issue through.

"I think too many people forget that not everyone can come to a beach that has fire rings," he said. "Families with a child that has asthma may not be able to come to this beach. A multi-generational gathering including young folks and grandma and grandpa may not be possible either, if the elderly have pulmonary problems."

Kiff says all Newport Beach wants is to make its beaches conducive for all families to enjoy.

"We don’t want to impact Huntington Beach or Doheny or San Clemente," he said. "We never did. We want to be family-friendly – the all-family friendly – place for beachgoers."

Newport Beach Mayor Keith Curry said he will be attending the mayors meeting in Santa Ana.

"It has been described as a ‘roll your sleeves up’ mayors meeting," Curry said. "I look forward to hearing the thoughts of other mayors. My position has always been that each city should decide what is best for itself. And as far as I see, it seems to be the general consensus as well."

Huntington Beach Mayor Connie Boardman said she is looking for a presentation from air quality board staff during the mayors meeting.

"I’m hoping that they finally have some data to share with us," she said. "It is meaningless to eliminate this great public amenity without any science. So far, there are no facts, no data that indicate our residents are at risk. I would hope they can indicate if the impact is coming from traffic, natural dust from the beach or smoke from barbecues of fire pits."

John Moorlach, supervisor for the Second District, which includes Huntington Beach and Newport Beach, said he would like to see the fire rings remain.

"I’m a strong advocate for the fire pits," he said. "It’s a recreational amenity that has been there historically much longer than the residents have. Removing them is not fair to beachgoers."

Moorlach said he believes the air quality board should drop the matter and leave it to the individual cities.

"This one-size-fits-all approach is not appropriate," he said. "The question we have to ask is: How do you solve a problem, but not get so overbearing that you suck the joy out of life?"

Contact the writer: 714-796-7909 or dbharath

FIVE-YEAR LOOK BACKS

May 14

2008

Christian Berthelsen of the LA Times provided a good news story in “Orange County gives developers a break on building fees – Officials agree to postpone collecting funds for housing construction projects. The move comes without analysis or discussion about the effect it will have on county finances.” Let it be known that during the recession, the Board did try to lend a helping hand where it could.

Acting at the request of the politically powerful real estate development industry, Orange County has agreed to postpone collecting fees for housing construction projects, without any analysis or discussion about the effect it will have on the county’s finances.

County officials and building industry representatives characterized the measure as an effort to help builders hit by the credit crunch and the real estate downturn to get projects off the ground. One supervisor, however, questioned whether it would stimulate growth and another critic dismissed it as a favor to the building business.

Orange County is the largest government agency in the state to adopt the change, which is being pushed by the Building Industry Assn., a trade group that lobbies local and state government on behalf of builders, engineers and other industries involved in housing construction.

The group is asking cities and counties throughout California for a similar break as part of a package of measures to ease up-front costs for developers amid an economic downturn that has hit the housing sector hard, particularly in Orange County. More than a dozen cities and counties have adopted the measure.

Developers of large-scale projects pay millions of dollars in up-front fees to cover the increased use of roads, parks, libraries and other services that more residents will generate. Governments put those funds in long-term, interest-bearing accounts and use the money to pay for infrastructure improvements and other services.

A rough industry estimate is that a developer will pay about $4.5 million in fees for a 100-home development.

Under the new order, Orange County and other agencies that have agreed to it will not collect those fees until construction has been completed and certificates of occupancy have been issued.

Industry representatives said the move would lower the amount builders have to borrow to get projects started and leave more cash to invest in their developments.

They also say it makes more sense to pay the fees when new residents begin using government services rather than years in advance.

"Doing something about the fees will stimulate building activity," Kristine Thalman, chief executive of the Orange County chapter of the Building Industry Assn., told supervisors during the board hearing Tuesday. "This will put funds into the economy and put our builders back to work."

Officials said Tuesday that they did not know how much the county has collected for such fees in previous years and could not calculate how much interest income would be lost, but maintained the amount was not substantial.

Still, the county is heading into a difficult budget season with the looming specter of cuts because the economic downturn has reduced tax revenue.

Asked why there was no financial study, which is a common facet of virtually every proposal that could affect county finances, Tim Neely, director of planning and development services, said: "We weren’t asked to analyze the fiscal impact."

Orange County’s Board of Supervisors voted unanimously to adopt the measure at the urging of Chairman John Moorlach, who called it an "economic stimulus package" that would help pull the industry out of the doldrums.

In an interview, he noted that counties depend on property tax revenue for 80% of their budgets, and said it made sense to help the industry because it would ultimately generate more tax revenue.

"The effect is that we’ve got people working," he said. "They’re buying goods and services that could more than offset that lost revenue."

Supervisor Pat Bates, whose district includes the pending Rancho Mission Viejo development of up to 14,000 homes that could benefit from the deferral, called the measure an "economic survival package."

"To see our building industry collapse, companies bankrupt and going out of business isn’t good for anybody," she said.

Real estate, housing construction and related interests gave tens of thousands of dollars in campaign contributions to supervisors last year, including $7,600 to Moorlach, records show. Moorlach said the contributions did not affect his judgment and he questioned the political power of the industry at the moment, saying it holds little sway while it is in such dire straits.

Though it passed unanimously, one supervisor questioned the proposal.

"To approve it as a stimulus package — I don’t know if that’s appropriate," Supervisor Chris Norby said.

Darrell Nolta, a close observer of county government, criticized the move as a favor for developers.

"There are many, many people who need to be helped" because of the economic downturn, Nolta said. "Not the builders."

Under the measure, the county public works department is scheduled to provide quarterly updates on the use of the fee deferral program, and supervisors will revisit the matter in one year to determine whether to make it permanent.

Developers will still have to pay some fees up front, including those for public safety, building and planning inspection services.

Peggy Lowe of the OC Register provided a story regarding herding cats with “Supervisors argue over how to interview sheriff’s candidates – Candidates to sign form promising not to watch other interviews.” Guess how the Board recently handled the interviews for the candidates for Clerk-Recorder and Auditor-Controller? You guessed it, the candidates were sequestered and were asked canned questions. Go figure.

Bitterness at a demand for prepared questions. Accusations of stage managing. The possibility of an isolation booth.

Welcome to the county’s search for a new sheriff – a bit of American Idol mixed with the $64,000 Question and topped with a little beauty pageantry.

Orange County supervisors’ debated Tuesday on how they will appoint a new sheriff was as contentious as, well, appointing a new sheriff. Three months after the resignation of Sheriff Mike Carona, the nine finalists for the job will be interviewed during a marathon public session on May 27 in which every detail has been discussed.

Supervisor John Moorlach, who as chair of the board gets to set such parameters, took the most heat when his plans were called "stage managed." And when Moorlach said he wanted to isolate the candidates scheduled for later interviews so they couldn’t hear the supervisors’ questions it was branded an "overreaction" by Supervisor Chris Norby.

"We’re interviewing people to run a jail," Norby said, "not to sit in one for a day."

Finally, after a debate that had people laughing at just what those locked up might do while waiting (Watch a DVD on "how to interview successfully?" joked Supervisor Pat Bates), the board decided to have the candidates sign a document promising not to watch the other candidates interviews.

As Norby was throwing rocks at Moorlach’s plan, Supervisor Janet Nguyen threw a couple of her own. Seems the day Moorlach wants to vote on the appointment — June 3 — Nguyen will be a little busy. Yes, that’s Election Day and Nguyen is in a battle to retain her seat.

Nguyen also said she took great issue with an email sent by Moorlach’s office on Monday "demanding" that her staff come up with questions for the candidates by May 21. Even Supervisor Bill Campbell diplomatically said he wouldn’t be following that one.

"We’re all going to be able to ask any question we want," Campbell said. "That’s our job."

Norby said he was opposed to the June 3 decision day as he might want to vote on a candidate the night of May 27, after he heard all the interviews during the planned 12-hour day. Campbell opposed that, saying he would want to mull things over. That’s especially true, Campbell said, if someone during the public comment period said something negative about a candidate, which he said would be like a campaign "hit piece."

Finally, Moorlach apologized to Nguyen. Then, he asked if it would still be OK if the board set the vote for early on June 3, which she agreed to.

So to wrap it all up, Ryan Seacrest style:

The candidates will be interviewed for about an hour each in this order: former Lt. Bill Hunt, Anaheim Deputy Chief Craig Hunter, retired Los Angeles County Sheriff’s Division Chief Sandra Hutchens, Glendale Police Chief Randy Adams, acting Sheriff Jack Anderson, Los Angeles County Cmdr. Ralph Martin, Salt Lake County Undersheriff Beau Babka, San Bernardino County Undersheriff Richard Beemer and Santa Ana Police Chief Paul Walters.

The questioning will begin at 9 a.m. on May 27, is open to the public or viewable from the county’s website at ocgov.com

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