Vol. 2, Issue 4 April 2013

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State and Local Procurement Law News State and Local Procurement Division

A 60-Second Update on What’s Happening

Editor-in-Chief

Melissa H. Harris McGlinchey Stafford PLLC [email protected]

Advisory Council

Bryan Boyd Arnold Gordee Nowicki & Augustini LLP [email protected] Jennifer L. Dauer Diepenbrock Elkin LLP [email protected]

Angela Hinton City of Atlanta - Law Department [email protected]

Keith McCook State Budget & Control Board [email protected]

Gerard E. Wimberly, Jr. McGlinchey Stafford PLLC

[email protected]

Volume 2, Issue 4, April 2013

Announcements: The 8th Annual State & Local Procurement Symposium will be held May 2-3, 2013 at the Hilton Nashville Downtown, in Nashville, Tennessee. There is still time to register! Further information can be found at http://www.ambar.org/SLspringmeeting. Also, save the date for next year's 9th Annual State & Local Procurement Symposium which will be held at the Grove Park Inn in Asheville, North Carolina on April 24-25, 2014. The next State & Local Procurement Division All-Member Meeting will be on April 26, 2013, from 11:00 to 11:50 Eastern time. Speaker and topic TBA.

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The deadline for submissions to the next issue of the State and Local Procurement Law News is July 1, 2013. Contact the editor-in-chief, Melissa Harris, at [email protected]. The deadline for submission to The Procurement Lawyer for the Fall 2013 edition is June 13, 2013. Contact the Editor-in-Chief, Nicole T. Owren-Wiest, at [email protected].

FEDERAL DEVELOPMENTS High Court Will Review Forum Selection Clause in Construction Contract The Supreme Court will review a ruling by the Fifth Circuit on the enforceability of a choice-of-forum clause in a subcontract for federal construction work. The case could resolve a circuit split regarding how deferential courts must be to forum selection clauses. In November 2012, the Fifth Circuit held that a dispute between Atlantic Marine Construction Co. and its subcontractor, J-Crew Management Inc., over a U.S. Army Corps of Engineers contract to design and build the Fort Hood Child Development Center in Killeen, Texas, had been properly brought in Texas federal court, notwithstanding a forum selection clause providing that any dispute related to the construction project would be brought in Virginia (Atlantic Marine’s home state). The Fifth Circuit found that the lower court properly took jurisdiction pursuant to 28 U.S.C. § 1404(a), because the construction took place in Texas and most of the potential witnesses were located in Texas. Atlantic Marine argues that this decision will encourage forum shopping. The case is In re: Atlantic Marine Construction Co., Inc., case number 12-50825, in the U.S. Court of Appeals for the Fifth Circuit. Health Care Providers and Contractors Brace for Tougher State False Claims Statutes States have been warned by Office of the Inspector General in a recently issued report that in order to continue to collect big financial incentives, they will have to amend their false claims statutes to conform them more closely to the federal FCA. States and the federal government usually split FCA settlements involving federal-state programs such as Medicaid based on how much of a program’s

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cost each party is responsible for. However, under the incentive program, which began in 2006, states with FCAs that mirror the federal FCA receive a bigger share of recoveries from false claims. Since the incentive program began, Congress has made sweeping changes to the FCA. The OIG made it clear that it expects states to keep changing their FCAs to reflect the federal FCA if they want to keep getting a bigger cut of recoveries by, for example, adopting at least a three-year statute of limitations on retaliation claims against whistleblowers, and dropping the requirement of a specific intent to defraud. Further, when future changes are made to the FCA, states will have to update their laws again. This has implications not just for health care providers, but for all contractors, because most states with FCAs have general statutes, not Medicaid-specific statutes. In a time of budget woes, the possibility of increased recoveries from fraud settlements is a powerful incentive for states to tighten up their statutes to conform to the FCA. Thus, everyone should be monitoring these developments closely. Fifth Circuit Holds that the United States Can Collect from Bankrupt Contractors A three-judge panel of the Fifth Circuit has ruled that the United States has priority to collect unpaid debts from owners of bankrupt contractors if the government had asserted a claim and the owner had knowledge of it before the bankruptcy. Renda Marine was awarded a contract in 1998 by the U.S. Army Corps of Engineers to dredge a portion of the Houston-Galveston navigation channel. Renda then asked for more money under the contract and was denied. Litigation ensued in the U.S. Court of Federal Claims, and the government asserted claims against Renda, alleging that he owed $11.9 million for defective and incomplete work. The government brought suit in Texas federal court in 2009, while Renda Marine was in bankruptcy. The panel ruled that a contracting officer’s determination that Renda Marine was indebted to the government, rendered pursuant to the authority granted by the Contract Disputes Act of 1978, constituted a claim within the meaning of the Priority Statute. Further, even though the owner of Renda Marine, Oscar Renda, was given erroneous advice by his attorney as to whether the claim was valid, he is still personally liable and the claim gets priority because he was given notice, he improperly made payments to himself after the government asserted its claim, and he did not file a timely appeal of the contracting officer’s determination.

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The case is U.S. v. Oscar Renda, case number 11-41203, in the U.S. Court of Appeals for the Fifth Circuit. Fourth Circuit Effectively Eviscerates FCA’s Time Limits The Fourth Circuit has found that a little-used World War II-era law, the Wartime Suspension of Limitations Act (WSLA), suspends the statute of limitations for all fraud claims during a time of war, regardless of whether war is formally declared by the government, regardless of whether the claims are civil or criminal, and regardless of whether they are being brought by the government or a private relator. The WSLA tolls any statute of limitations relating to an “offense” involving “fraud or attempted fraud” against the federal government “[w]hen the United States is at war.” 18 U.S.C. § 3287. The suspension is effective until five years after hostilities have terminated. Id. In United States ex rel Carter v. Halliburton Co. (4th Cir. Mar. 18, 2013), a divided panel of the Fourth Circuit concluded that the WSLA tolled the six-year FCA statute of limitations for false claims alleged under a 2005 war zone contract. This decision is extremely troubling for contractors, as it leaves them vulnerable to claims that would otherwise be stale. For example, contractors may see relators arguing that the WSLA functions to toll claims dating back to the beginning of the U.S. invasion of Iraq, March 19, 2003, or even that there has been no formal “suspension of hostilities” in the war against terrorism, thereby creating an indefinite tolling of the FCA’s statute of limitations. There may be some consolation in the FCA’s 10-year statute of repose, since the Halliburton decision left unsettled whether it would be trumped by the WSLA’s tolling provisions. It remains unclear whether other courts will follow the Halliburton court’s broad interpretation as the WSLA.

Among the Various States: CALIFORNIA

J-M Manufacturing Can’t Shake FCA Lawsuit Over Defective Pipes

A federal district court judge recently refused to throw out a False Claims Act lawsuit alleging that J-M Manufacturing Co., Inc. defrauded dozens of local and state governments by selling them defective water pipes that it knew

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would fail earlier than promised. Judge George H. Wu ruled on March 4, 2013 that J-M could be liable under the FCA if it not only sold the state and local governments faulty pipes but also if it failed to conduct adequate testing on the pipes. In ruling for the plaintiffs, Judge Wu concluded that, “If J-M’s goal is to have the Court rule that Plaintiffs cannot prevail by proving only that they received pipe that did not conform to J-M’s testing obligations . . ., [then controlling case law] suggest[s] that J-M will not achieve that goal.” Last month, the judge denied a motion to dismiss filed by Formosa Plastics Corp., the former parent company of J-M. Trial is set for August 13, 2013. The case is U.S. ex rel. John Hendrix v. J-M Manufacturing Co., Case No. 5:06-cv-00055, United States District Court for the Central District of California. Former Los Angeles Coliseum Officials Can’t Dodge Kickback Claims

A federal district court judge recently refused to dismiss a lawsuit filed by the Los Angeles Memorial Coliseum Commission against two ex-Coliseum officials and two rave promoters who were allegedly involved in a multimillion dollar kickback scheme. The ruling will allow the Commission to pursue its action against Todd DeStefano and Patrick Lynch, former Coliseum officials, as well as others accused of engaging in corrupt acts. A criminal case is also pending against DeStefano and Lynch. The two were arrested last March on bribery and embezzlement charges related to the purported scheme. The Coliseum, which opened in 1923, is currently the home of the University of Southern California football team. The case is Los Angeles Memorial Coliseum Commission v. Lynch, Case No. BC472814, Superior Court of the State of California, County of Los Angeles. FLORIDA

House Subcommittee Passes Bill to Strengthen State’s FCA

The Florida House Civil Justice Subcommittee has unanimously approved a bill (H.B. 935) to strengthen the state’s False Claims Act in an effort to bring it closer to the federal FCA. Some of the proposed changes include allowing subpoenas to be issued by the Department of Legal Affairs and the Department of Financial Services in all fraud cases, not just Medicaid fraud cases, expanding the reach of the statute to include claims against the “state,” not just “agencies,” and allowing private parties bringing suits to recover legal costs from defendants.

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State Attorney General Pam Bondi stated, “This legislation allows my office to better protect taxpayers’ hard-earned money by stopping unscrupulous individuals and companies that seek to steal money from the state of Florida.” An accompanying bill (H.B. 1297), also approved by the Subcommittee, would provide that complaints and information held by the Department of Legal Affairs or the Department of Financial Services are confidential and exempt from public records laws. Both bills are scheduled to go before the Senate Judiciary Committee shortly. Senate Panel Votes to Approve Sales Tax Exemption for Manufacturers and Eliminate Incentive Program for Defense Contractors

A Florida Senate Panel has passed a bill that would expand the state’s existing sales tax exemption to all businesses in the state by eliminating the requirement that businesses demonstrate that their purchases will increase productivity by at least 5% in order to qualify. Florida is one of the only states in the country that does not have a comprehensive sales tax break for manufacturers. According to State Senator Dorothy L. Hukill, the sponsor of the bill, this puts the state at a disadvantage in attracting and developing industry. Hukill stated, “Florida’s economy continues to improve, and it is critical that we support the companies that make up the backbone of our economy. Eliminating the sales tax on equipment and machinery will allow these companies to reinvest in their businesses and employees while continuing to grow the economy in our great state.” In addition, the bill also removes an annual cap on tax refunds for individual participants in the Qualified Defense Contractor and Spaceflight Business Tax Refund program or the Qualified Target Industry Tax Refund. Further, it reduces the approval requirements for Innovation Incentive Program awards. The same panel has also approved another bill, S.B. 582, called the Manufacturing Competitiveness Act, which would authorize local governments to create local manufacturing development programs to obtain master plan approvals for sites at the local level and streamline permitting processes.

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Miami-Dade County Sued Over Airport Luggage-Wrapping Contract

The joint venture TrueStar USA has sued Miami-Dade County, accusing the county commissioners of arbitrarily and capriciously awarding a contract to wrap luggage at Miami International Airport to its competitor, Secure Wrap of Miami Inc. Plaintiffs argue that the county commissioners voted against TrueStar, even though Miami-Dade’s Mayor Carlos Giminez, the airport director and a county committee had all recommended TrueStar. According to the lawsuit, Secure Wrap offered the county less money and has frustrated auditing efforts. Secure Wrap had an exclusive deal to handle all baggage wrapping at MIA from 2001-2010, but in July 2010 TrueStar received a contract for a five-year term, with a two-year option to renew. According to the complaint, TrueStar’s revenues began to fall, and the company approached the county about lowering its minimum annual revenue guarantee. The county approved the request, but also reduced the contract and authorized a new request for proposals. This is not the first time that the parties have been involved in litigation over the MIA contract. In 2011, TrueStar sued Secure Wrap and accused it of using threats and libel after it won the baggage wrapping contract. TrueStar also accused Secure Wrap of undermining its contract by paying kickbacks to travel agencies and taxi companies in exchange for delivering passengers to offsite locations to have their bags wrapped before arriving at the airport. Secure Wrap has filed a motion to dismiss the suit, which will be heard in late April. The case is Truestar USA v. Miami-Dade County, case number 2013-09179-CA, in the Eleventh Judicial Circuit Court of Florida. LOUISIANA

New Orleans Contractor Sentenced for Nagin Administration Kickback Scheme

Richard Hall, one of four contractors who pled guilty to defrauding New Orleans’ city home-remediation program in a high-profile scandal first made public in 2008, was sentenced to two years in prison. According to a press release from the U.S. Attorney’s Office, District Judge Jay Zainey imposed a harsher sentence than required by the federal sentencing guidelines. Hall

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was also fined $30,000 and ordered to pay more than $116,000 in restitution. Hall’s company, Hall Enterprises, worked exclusively for the now-defunct New Orleans Affordable Homeownership Program (NOAH), which was expanded after Hurricane Katrina by former mayor Ray Nagin to provide house-gutting services financed by federal grants. During 2007, Stacey Jackson, the former executive director of NOAH and a cousin of Hall’s, who is identified only as “City Official A” in court documents, wrote checks to Hall Enterprises totaling about $290,000 for remediation work. However, Hall did not perform much of the work, and received double or triple payment for work he did perform. Several other contractors involved in the scam have already pled guilty. Although Jackson has not yet been charged, it is believed that federal prosecutors are actively trying to build a case against her. Former Orleans Parish Official Pleads Guilty to Charges of Bid-Rigging and Kickbacks

The former purchasing director for the Orleans Parish Sheriff’s Office, John Sens, has pled guilty to bid-rigging and kickback charges. Sens’ is the first guilty plea in the case. Charges against additional defendants, including deputies and contractors, are expected. According to the bill of information, the two contractors who allegedly paid off Sens and another high-ranking deputy, former Col. Gerard Hoffman Jr., also charged in the scheme, are Richard Molenaar III, an air-conditioning contractor, and John Killeen, an electrician who did significant electrical work for the Sheriff’s Office from 2006 to 2009. The two are described as “Businessman A” and “Businessman B” in court documents. In total, the government alleges that Sens and Hoffman received approximately $68,000 in kickbacks from the contractors. Further, under the bid-rigging scheme, the businessmen submitted real bids under the company names and phony higher bids under other local company names in order to subvert a requirement for three competitive bids. Sens resigned from the sheriff’s office several weeks ago without explanation. It is not yet known whether Orleans Parish Sheriff Marlin Gusman will be implicated in the scheme.

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Nagin’s Corruption Trial Delayed Until October

The trial of former New Orleans mayor Ray Nagin has been delayed until October 7, 2013. Nagin was indicted in January on 21 counts, including bribery, money laundering, conspiracy and tax fraud. He has pleaded not guilty. Nagin is accused of having taken bribes and gifts from three city contractors. Two of those contractors – Rodney Williams and Frank Fradella – have agreed to plead guilty and are expected to testify at Nagin’s trial. Williams has admitted giving Nagin and his sons $72,500 in exchange for Nagin helping to steer city work to Williams’ former firm, Three Fold Consultants. Fradella has admitted to paying Nagin a $50,000 bribe and delivering free granite to Nagin’s family countertop firm, Stone Age LLC. The third contractor, Mark St. Pierre, is serving a 17 1/2 year federal prison sentence for his conviction of bribing Greg Meffert, Nagin’s chief technology officer. St. Pierre is also expected to testify against Nagin in exchange for a reduction in his sentence. MARYLAND

Sequestration Starts to Hit Home in Maryland

The federal budget sequestration is just the latest in a string of hits to federal contractors in Montgomery and Frederick counties in Maryland. Officepro, which derives about 80 percent of its revenues from federal contracts, has already seen federal clients either delay making decisions about training or outright cancel planned training, said Judy Stephenson, president of the Gaithersburg software training company. “It’s having a significant impact on our business,” she said, estimating that revenues could be down from 10 percent to 20 percent at her business because of the latest broad reductions. The sequestration cuts, which started several weeks ago, could reach $85 billion this fiscal year. Bethesda military and aerospace giant, Lockheed Martin, is still working with customers to understand how exactly sequestration will affect programs, a company spokeswoman, Jennifer Allen, said this week. Delays in funding for production programs could increase costs and “ultimately weaken our national security posture,” she said. In Lockheed’s recently filed annual report, executives said that the sequestration cuts would about double the size of the 10-year, $487 billion reduction in Pentagon spending that began in fiscal 2012.

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Bethesda hotelier, Marriott International, the second-largest company in revenues based in Maryland behind Lockheed, could suffer if federal agencies reduce travel by employees and contractors, executives said in its recent annual report. Federal government travel is a “significant part of our business,” they said. A Marriott spokesman, Jeff Flaherty, said that it was “too early to tell” if the company will delay hiring or have any other impact due to the sequester. The company has about 10,000 employees in Maryland, according to the state. Maryland ranks second nationally in federal procurement and third in total federal funds, which also includes grants, federal salaries and other payments, according to a recent state report. In fiscal year 2012 alone, the federal government awarded $10.4 billion in contracts and $168 million in grants to Montgomery County companies and organizations. About $5 billion in prime federal contracts held by county businesses last fiscal year could be adversely affected, county officials said. The National Institutes of Health in Bethesda could see $1.5 billion cut from its $31 billion budget because of the sequester, according to a federal report. MICHIGAN

Former Detroit Mayor Convicted in Massive Corruption Case

A federal jury has convicted former Detroit Mayor Kwame Kilpatrick of 24 counts of public corruption charges, finding that he took kickbacks and bribes to steer city business to certain contractors. Kilpatrick potentially faces 20 years in prison for his convictions In December 2010, a federal grand jury issued a 38-count indictment against Kilpatrick, his father Bernard Kilpatrick, his contractor friend Bobby Ferguson, his former mayoral aid Derrick Miller, and former Detroit Water and Sewerage Department Director Victor Mercado. Prosecutors characterize the corruption as “breathtaking,” stating that Kilpatrick ran a “pay-to-play” scheme with his father and Ferguson. Approximately 80 witnesses testified on behalf of the government during trial. The star witness for the government, former mayoral aide Derrick Miller, who pled guilty to bribery in September 2011, testified that he once handed a $10,000 kickback to Kilpatrick in a downtown Detroit bathroom. According to prosecutors, Kilpatrick used the proceeds from the corruption to support a lavish lifestyle, including luxury vacations, custom-made suits and golf trips. Another witness testified that Kilpatrick forced him to hire Ferguson in order to get a $50 million contract moving. Mercado pled guilty to conspiracy mid-trial.

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The case is U.S. v. Kilpatrick et al., case number 2:10-cr-20403, in the U.S. District Court for the Eastern District of Michigan. NEW JERSEY

Legislation Introduced to Exempt Sandy Contracts from Prevailing Wage Requirements

Legislation has been introduced in the State Assembly that would exempt certain public works projects from “prevailing wage” requirements if they are related to Superstorm Sandy rebuilding efforts. The prevailing wage requirement mandates that public agencies pay workers at union scale. Critics of prevailing wage requirements argue that they drive up projects’ costs, while supporters argue that the requirements are the only way to ensure that workers’ pay remains reasonable. Prevailing wage requirements have come under attack recently in various states. For example, New York’s highest court recently ruled that a town’s volunteer fire department did not have to adhere to the state’s prevailing wage law when it built a new firehouse, finding that volunteer fire agencies, which are private entities, were not included in the list of entities covered by the law. In addition, Missouri’s House of Representatives recently passed a bill that would exempt school districts from prevailing wage laws. Similar legislation to exempt school construction from prevailing wage laws has been introduced in Nevada, Washington and Michigan in the past few months. The New Jersey bill has been referred to the General Assembly’s Labor Committee for a committee vote. New Jersey Lottery Contract Oversight Bill Awaits Action by Governor

After receiving final approval from the state Senate, a bill that would require legislative consent to privatize functions of New Jersey’s lottery, A3614, has been sent to Governor Chris Christie for his signature. He has only a few weeks left to act on the legislation, and is not expected to sign it. A-3614 would require that any contract between the state and a private entity relating to operation of the lottery be subject to approval by the Senate and Assembly by a majority vote in the form of a concurrent

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resolution. The legislation was issued in response to Governor Christie’s proposal to have a private entity manage lottery operations in order to boost lottery sales and marketing. In August 2012, the state’s Treasury Department issued a request for proposals for “lottery growth management services,” seeking private bids for a 15-year contract worth approximately $120 million to run the state’s $2.7 billion lottery. The request for proposals resulted in one bid. Christie has been widely criticized for his administration’s secrecy surrounding its privatization proposal. Further, one of the sponsors of A3614, Assemblyperson Bonnie Watson Coleman, stated, “Privatization should be reserved for when the government cannot perform that function well on its own. Yet in this case, it appears that the only one that stands to benefit from this proposal is the company chosen to take over this asset. Legislative oversight is clearly warranted.” State Focuses Attention on Combating Sandy Fraud A Statewide Sandy Fraud Working Group, which will act to coordinate the investigation and prosecution of Superstorm Sandy-related fraud, has been created by the Attorney General’s office. The group will consist of members of the divisions of criminal justice and consumer affairs, the state police, and certain county prosecutors’ offices. Examples of Sandy-related fraud include price-gouging by hotels and gas stations in the immediate aftermath of the storm, charity scams, and fraudulent sales of flood-damaged vehicles. There have already been numerous prosecutions of these types of crimes. The state is also focusing its attention on ensuring that the $60 billion of federal aid money does not get abused. Recently the state comptroller launched its NJ Sandy Transparency Portal, which is a website that will detail the allocation and expenditure of federal disaster relief funds, list available funding sources and their criteria, and contain information on which vendors were awarded federal contracts. Governor Chris Christie established this portal by executive order in February. Further, the New Jersey General Assembly recently approved legislation, Bill A-60, establishing oversight and transparency measures to ensure that Sandy relief money from the federal government is properly allocated. The legislation is now headed to Governor Christie’s desk for approval.

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Christie’s Administration Cracking Down on Pay-to-Play Abuses

State Attorney General Jeffrey Chiesa recently announced the indictment of Birdsall Services Group and several of its top executives over an alleged plot to hide illegal corporate campaign contributions as personal employee donations and evade the state’s pay-to-play restrictions. The indictments signal that Governor Chris Christie’s administration will aggressively prosecute such schemes, and that there will be serious consequences for those government contractors that attempt to dodge the pay-to-play restrictions. According to authorities, shareholders and other Birdsall employees wrote checks of $300 or less – which are not subject to reporting requirements – which were then bundled and sent to campaigns or political organizations. Birdsall then reimbursed those contributions. The Birdsall executives who have been indicted have each been charged with making tens of thousands of dollars in political contributions that were illegally reimbursed. Further, the Birdsall executives are accused of failing to disclose the contributions on forms filed with the state’s campaign finance regulator, and submitting numerous false certifications when competing for public contracts. The bottom line is that companies that do business in New Jersey, and elsewhere, need to ensure they have a culture of compliance when it comes to political contributions. School Construction Authority Adopts New Procedures for Design-Build Contracts

The New Jersey Schools Development Authority, the entity responsible for the construction and renovation of the state’s public schools, has adopted new procedures for design-build contracts for school construction projects, in order to comply with an appellate court’s order that it change its discretionary bidding process. In new rules published in the New Jersey Register, which took effect in late March, the Authority has clarified its procedures for choosing builders through its competitive bidding process – specifically, by defining the process by which bidders are shortlisted. Shortlisting is the second part of the two-phase bid process during which the winning bid is chosen from a narrowed group. Under the amended provisions, bidders must demonstrate not only their own expertise, but that of the entire design-build team, in order to be shortlisted. In addition, bidders will have to demonstrate their affirmative action experience.

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Back in April 2010, the Superior Court of New Jersey, Appellate Division, had ruled that the shortlisting process was “arbitrary and invalid,” finding that terms used in the process such as “most advantageous” and “most qualified” were too vague to justify selection of bidders. The court recommended that the Authority either eliminate the shortlisting process, or more clearly define the criteria, and the Authority opted for the latter. NEW YORK

New York State Comptroller Slams MTA Railroad Expansion Project

New York State Comptroller Thomas P. DiNapoli has issued a report sharply criticizing the Metropolitan Transportation Authority’s ongoing East Side Access project as being ten years late and $4.4 billion over budget – twice what the MTA originally estimated. The MTA has defended its initial estimate of $4.3 billion, with a completion date in 2009, as being based on conceptual plans that were developed prior to certain environmental and engineering reviews. Currently, the completion date is estimated for December 2013, with a total cost of $8.7 billion. The federal government is contributing $2.7 billion for the project, New York State is contributing $450 million, and the MTA is now contributing $5.6 billion. The project, which will allow Long Island Rail Road trains to use Grand Central Terminal for the first time, is expected to benefit Long Island commuters and help promote economic development. Expected to serve 160,000 commuters per day, it is the largest public transportation project in the country. DiNapoli stated, “Time and again, the MTA has come up short on the goal to deliver the East Side Access project on schedule and within budget. While this project is an important addition to the regional mass transit system serving New York City and Long Island, taxpayers will have to bear the brunt of these unanticipated costs. There must be lessons learned at the MTA from this experience as they move forward with their capital program.” Update: Allscripts Dismisses Lawsuit Over NYC Hospital Contract

Allscripts Healthcare Solutions, Inc. has dismissed its lawsuit that sought to overturn a $303 million electronic medical records contract awarded by New York City’s public hospital system, the New York City Health and Hospitals Corp., to one of Allscripts’ competitors, Epic Systems Corp., on the basis that its bid had been improperly reviewed. The stipulation of dismissal filed in court did not indicate the reasons for the dismissal. In a public

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announcement of the dismissal, Allscripts stated that it “looks forward to having the opportunity to work with HHC on other matters in the future.” The suit, which was filed in December 2012, accused the city’s hospital system of miscalculating when evaluating Allscripts bid to install an integrated medical records system at a number of city medical facilities. The alleged miscalculations failed to account for unique aspects of Allscripts’ proposal, and relied on unsupported data, and resulted in an alleged overestimate of $500,000. HHC defended its decision, stating in response that Allscripts’ bid was inferior, that it had repeatedly lost business to Epic in the past, and that it was just making a desperate attempt to reassure investors after its stock price had declined. The case is Allscripts Healthcare Solutions, Inc. v. New York City Health and Hospitals Corp., et al., case number 654362/2012, in the Supreme Court of the State of New York, County of New York. Governor Cuomo and Environmental Groups Reach Accord over Tappan Zee Bridge Replacement

Two influential environmental groups had threatened litigation against the state’s $3.9 billion to replace the Tappan Zee Bridge with a new, dual span bridge connecting Westchester and Rockland Counties, due to alleged threats to Hudson River water quality and species. However, Governor Cuomo announced that the groups are now throwing their support behind the plan, in exchange for the state’s promises of various environmental enhancements, including increased environmental mitigation funding, restoration of river channels, protection of native species and eradication of invasive species. In addition, money will be earmarked for developing and implementing community-based waterfront revitalization projects. With this accord, the state permitting process is complete, and the biggest remaining obstacle to the project’s implementation has been removed. Now, the next steps are approval from the Coast Guard and the U.S. Army Corps of Engineers. In addition, the state is waiting to find out whether its application to the U.S. Department of Transportation for a $1.5 billion Transportation Infrastructure Finance and Innovation Act loan will be granted. The state will bear between $500 and 800 million in project management and oversight costs.

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OHIO

Cincinnati’s Bidding Rules for Municipal Contracts Won’t Change for Now

United States District Judge Timothy Black denied a request for a temporary restraining order suspending the city of Cincinnati’s bidding procedures for municipal contracts, which two contractors claim are discriminatory and unconstitutional. In January, Rack & Ballauer Excavating Co., Inc. (“R&B”) and RB South, Inc. (“RB South”), filed a motion for a temporary restraining order in tandem with a complaint for injunctive and declaratory relief, wherein they allege that they cannot compete fairly with other companies for city waterworks projects because portions of Cincinnati’s residency requirements, income-based preferences, and responsible bidder ordinances are unlawful. R&B and RB South recently lost bids for waterworks projects within the city. The companies filed suit with the hopes of being awarded the projects at issue, as well as stopping the allegedly discriminatory practices. The judge tossed plaintiffs’ motion, explaining that “plaintiffs have not met their extraordinary burden of establishing by clear and convincing evidence their entitlement to a temporary restraining order . . . The public interest is best served by the timely completion of the project, uninterrupted by legal process, given the backstop of potential recovery of money damages if a bidder were unlawfully precluded.” The case is Rack & Ballauer Excavating Co. v. City of Cincinnati, Case No. 1:13-cv-00030, United States District Court for the Southern District of Ohio. PENNSYLVANIA

Pennsylvania Lawmaker Questions State’s Website Contract

Pennsylvania State Representative Rob Matzie is questioning why Governor Tom Corbett’s administration awarded a no-bid contract to a firm to manage the state’s website infrastructure and technology. Matzie raises concerns that the contract would result in new fees being imposed on everyday transactions made by Pennsylvanians. In a letter to Attorney General Kathleen Kane and Auditor General Eugene DePasquale, Matzie voiced his complaints about the sole-source contract with a subsidiary of Kansas-based NIC Inc. Matzie said the 456-page

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contract appears to give NIC the right to do the credit card processing for new or existing electronic transactions for up to 10 years, potentially earning NIC hundreds of millions of dollars. “This lucrative contract was awarded without giving any other company the opportunity to compete for that business.” Matzie also questioned whether the Corbett administration can legally impose new fees on transactions without legislative approval, and he said nothing in the contract prevents NIC and the Corbett administration from imposing new fees on every single transaction that residents have with state government every day. A spokesman for the Governor’s Office of Administration responded that the firm is the only company in the country that does what it does, therefore it was unnecessary to open the contract to bidding. The five-year Pennsylvania contract, effective Dec. 1, would pay NIC through fees that are to be imposed on optional, high-volume transactions initiated by businesses, such as insurance companies seeking driving records, the Office of Administration spokesman said. NIC has contracts with 28 other states, and a spokeswoman for the company would not discuss why the Pennsylvania contract was the only one that was a sole-source agreement. NIC’s chief financial officer, Stephen Kovzan, expects motor-vehicle revenue from Pennsylvania to range from $7 million to $7.5 million in 2013, with a first-year gross profit margin above 30 percent. Government Contract Disputes Cannot Go to Open Court

The Pennsylvania Supreme Court has ruled that disputes over government contracts awarded under the state’s Procurement Code belong exclusively under the jurisdiction of the state’s Board of Claims and not before any other legal venue. The unanimous ruling overturns a Commonwealth Court finding that Scientific Games International Inc., a company originally selected for a contract to provide computer systems that monitor slot machines, had the right to contest the repeal of the offer in front of the court. The high court concluded that since the legislature declined to waive its sovereign immunity in the Procurement Code, the only place for SGI’s objections is in front of the Board of Claims. “Nonmonetary claims against the commonwealth are cognizable only to the extent they fall within some ‘specific’ waiver or exception to immunity,” Justice Thomas Saylor wrote in the opinion. “As explained, no such waiver or exception is found in Section 1724(d) of the Procurement Code, and neither the Commonwealth Court nor SGI has identified any other salient and specific waiver provision within which to bring SGI’s claims.” The Pennsylvania Supreme Court concluded in the

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opinion that the “legislature did not implement any waiver of sovereign immunity and afforded no remedy to aggrieved bidders and offerors which have not yet entered into an executed contract with a commonwealth agency.” “The decision clearly defines the procurement appeals process and limits where procurement appeals can be filed,” said Elizabeth Brassell, the Department of Revenue press secretary. “We believe this will result in greater focus and efficiency.” The case is Scientific Games International v. Commonwealth of Pennsylvania, Department of Revenue et al., case number 43 MAP 2012 in the Supreme Court of Pennsylvania. Former High-Ranking Officials and Senator Indicted in Pay-to-Play and Bid-Rigging Scheme

According to the indictment, a group of former high-ranking officials with the Pennsylvania Turnpike Commission, as well as a former state senator currently serving jail time on corruption charges, Bob Mellow, engaged in a scheme to steer turnpike contracts to political donors rather than to the lowest or most qualified bidders. Further, Mellow used the commission to raise money for his political campaigns by asking the officials to invite engineers and other contractors to fundraisers that they coordinated. The firms who participated in the fundraising and wrote the biggest checks generally ended up winning bids, according to the indictment. “It’s a huge organization with vendors with deep pockets and their commissioners are approved by the Senate. It’s as simple as that,” said Mellow’s former chief of staff, Anthony Lepore, in grand jury testimony. The investigation began in 2009, and a number of turnpike contractors and consultants have testified before the grand jury. Charges have also been filed against several turnpike vendors. TEXAS Texas High Court to Review Contractor’s Overrun Suit The Texas Supreme Court has agreed to consider whether builders who suffer economic loss on government contracts can seek damages from the design professionals behind the projects.

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The court granted a petition for review from design company LAN/STV, who argues that it was wrongly found liable for part of a $5 million judgment awarded to contractor Martin K. Eby Construction Co., Inc., who sued LAN/STV and the Dallas Area Rapid Transit Authority for cost overruns incurred on a rail expansion project. LAN/STV prepared plans, drawings and construction specifications for the plan. DART incorporated the plans into a bid solicitation package, and Eby Construction received the project. During the project, Eby incurred more delays and costs than expected, and DART made changes to the design after construction began. Eby sued DART in federal court and LAN/STV in state court. A state court jury awarded Eby $5 million, of which the trial court ordered LAN/STV to pay $2.25 million. An appellate court upheld the judgment, holding that the state’s economic loss rule does not bar a contractor’s claim against a third-party design professional for purely economic losses. The case is LAN/STV v. Martin K. Eby Construction Co. Inc., case number 11-0810 in the Supreme Court of Texas. Pending Legislation Would Require Officials to Reveal Government Contracts A bill pending before the state Legislature, H.B. 524, would require elected officials to publicly disclose income received through contracts with state government entities. Specifically, the bill would require the disclosure of the nature and value of any state contracts awarded to elected Texas officials, their immediate family members, or a business entity in which the official or their family owns at least a 50 percent interest. Since its introduction in the legislature by freshman legislator Giovanni Capriglione, the legislation has caught various legislators’ attention and appears to be gaining some traction. If it is enacted, it will take effect on September 1, 2013. WASHINGTON, D.C.

$100 Million Streetlight Contract Award Overturned

Citelum DC LLC, an electrical systems company, has successfully challenged the award of a $100 million contract by the D.C. Department of Transportation to manage and upgrade D.C.’s streetlights. On March 1, 2013, the D.C. Contract Appeals Board sustained Citelum’s bid protest and set aside the contract that had been awarded to M.C. Dean Inc., citing improprieties in the procurement process.

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On August 9, 2011, the D.C. Office of Contracting and Procurement issued a bid solicitation for a contractor to perform asset management services to maintain, rehabilitate and preserve the streetlight system. After reviewing bids, the DOT recommended that the contract be awarded to Citelum, and M.C. Dean then filed a bid protest, which was dismissed by the DC CAB. After another round of bids, the panel recommended that M.C. Dean be awarded the contract, finding that its proposal was “the best value to the district.” Citelum then filed its bid protest, arguing that the city failed to officially appoint a contracting officer, the bidders were inequitably treated, and that the DOT failed to conduct a cost realism analysis prior to awarding the contract. With Citelum’s protest having been sustained, the DOT has been directed to reissue the streetlight solicitation, designate a contracting officer, provide offerors an opportunity to submit revised proposals, and re-evaluate the final proposals for technical requirements compliance and pricing in a manner consistent with the terms of the solicitation and relevant laws and regulations. The case is Protest of Citelum DC, LLC, case number P-0922, for the District of Columbia Contract Appeals Board. WEST VIRGINIA

State Senate Moves to Make Design-Build a Permanent Highway Tool

After saving nearly $50 million on ten projects built through a design-build pilot program, a West Virginia senate committee has proposed removing the pilot provision of the program’s renewal bill to make design-build a permanent state DOT tool. The Highway Design Build Pilot Program is up for renewal July 1, 2013. Senate Bill 553, when initially taken up by the Senate Transportation and Infrastructure Committee, would have extended the program for five years. Paul Mattox, Secretary of the Department of Transportation, explained the program. “It allows us to construct projects where we may not have plans on the shelf ready to go,” Mattox said. “It allows us to get the project up and procured with the contractor and the engineer working together so that you save time and you save money.” Other changes in the bill include removal of the limit to the number of projects, a reduction in the program’s annual cap from $75 to $50 million and a required written annual update for the legislature from the Division of Highways commissioner.

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Harford County Board of Estimates Approves ‘State Government Relations’ Contract

The members of Harford County’s Board of Estimates unanimously approved a $43,090 contract Thursday to hire a “state government relations” consulting firm to advocate on the county’s behalf in Annapolis. The board awarded the contract to G.S. Proctor & Associates Inc. of Annapolis, which lists the Harford County government among its extensive client list posted on its website. County government spokesman Bob Thomas said Proctor has provided lobbying services to the county for three years, and the contract approved Thursday was essentially a renewal. Legislative relations in the county government administration are handled by Aaron Tomarchio, the county executive’s chief of staff. Tomarchio, who made the presentation to board members Thursday, said representatives of G.S. Proctor are “able to tell Harford County’s story in Annapolis” because of long-standing relationships in the state capital. “Having an extra set of hands in Annapolis, people who have relationships where we don’t normally have relationships, that has helped get our needs met,” he said. Tomarchio said lobbyists have successfully advocated for Harford County when legislators of other counties tried to bar Harford from becoming part of a Youth Services Bureau in recent years and also worked to protect Harford-based defense companies from being harmed by this year’s gun bill. “A lot of getting things done in Annapolis, and getting things done in any government setting, is all about relationships,” he added. Your e-mail address will only be used within the ABA and its entities. We do

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