October 31, 2013

Shredded documents taint multi-million dollar state contract

Editor's note: The following story ran Oct. 2, 2013 in Kentucky Roll Call

A former governor of our state once told Kentucky Roll Call that a governor should always appoint as secretary of the Finance and Administration Cabinet a person who understands what he wants without having a conversation about it. That way, if trouble arises, the governor can say, “I had no part in that decision.” While that may or may not apply to this story, an appearance of telepathy colors it.

It’s about a state contract for printing services, and the bidding for it by Lexmark and Xerox, and the shredding of evidence by the Finance Cabinet.

There were two RFPs (Requests for Proposal) for this five-year, multi-million dollar contract: In the first go-round, in 2011, the contract was awarded to Xerox. Lexmark filed an administrative appeal (protest), which the Finance secretary ultimately upheld, reversing the award to Xerox, based on a discovery of “error and prejudice” — the scoring was called into question.

Consequently, the Cabinet secretary ordered, on March 20, 2013, that the RFP be rebid.

The second RFP, issued on May 14, 2012, is where we pick it up. The RFP covered “equipment [printers and copy machines], needs analysis, training, implementation and maintenance” for the printing needs for all of state government.

Xerox proposed a cost of $23.3 million, and Lexmark $15.8 million. For Xerox, that comes to $387,793 a month, and for Lexmark, $262,891 a month — a difference of $124,902 every month for five years, and possibly 10 years.

The total difference of $7.5 million over the initial term could eventually reach $15 million or more in the event the renewal options are exercised — for roughly the same product and roughly the same service.

Bidders were evaluated in three categories: (1) technical proposal, (2) cost proposal, and (3) oral presentation. Lexmark outscored Xerox in each of the first two categories by a total of 40 points (3,911 to 3,871).

But on the final and more “subjective” evaluation, the oral part, Xerox scored 480 out of 500 points to Lexmark’s 400, thus edging out Lexmark by 40 points to win the contract.

On Sept. 24, 2012, the Finance Cabinet awarded the contract to Xerox and, the next day, directed the members of the evaluation team to shred their score sheets and other evaluation documentations.

Xerox is a client of the Louisville-based law firm Stites & Harbison. Before becoming governor, Steve Beshear was a partner at the firm, and his son, Andrew, is now an attorney there.

Lexmark filed an administrative appeal on Oct. 13, 2012. That process would take four months, until Jan. 18, 2013, when the Finance secretary denied it, clearing the path for the Cabinet to proceed — to give the contract to Xerox.

Lexmark sued the commonwealth, the Finance secretary and Xerox in Franklin Circuit Court on Feb. 12, 2013 (Civil Action No. 13-CI-00158), claiming that the secretary’s decision giving the contract to Xerox was “unlawful, arbitrary, capricious and unsupported by the record.”

Where the story began
In early 2010, Gov. Beshear launched a program called Smart Government Initiative, an innovative effort in which employees would examine the efficiency of state government and then recommend ways to trim costs. The goal of SGI was “to save taxpayers dollars,” the governor reasoned.

The employees did their part; they identified ways to save $7.2 million in the first year alone. But Lexmark contends paying Xerox $7.5 million more than what it proffered canceled out the SGI savings.

Destruction of documents
Beyond the savings question, however, there is a larger issue: the destruction of documents.

On Sept. 25, 2012, Brenda Brown, an employee in the Commonwealth Office of Technology, an agency of the Finance Cabinet, sent an e-mail to the members of the evaluation team, which read, in part:

“The MPS contract has been awarded to Xerox. I have checked with Stephanie Williams, OPS, and Terry Stephens, Executive Director — OIS, you may now shed your evaluation documentation, including any response CDs, paper copies, scorecards and/or other notes. Don’t forget to delete electronic copies/emails, etc.”

One day after Brown’s e-mail, Lexmark, on Sept. 26, served its first open records request, asking for “any and all correspondence, emails, memoranda and other communications that refer to or relate in any way” to the RFP and the evaluation and scoring of the bidders.

By law, government agencies are required to respond to open records requests within three business days, and then may take an additional reasonable time to gather the information. In this case, the Brown e-mail would not be made known to Lexmark until three months later on Dec. 26.

Though the Cabinet provided an initial response to Lexmark’s open records request, dated Oct. 18, 2012, which included 12 pages of e-mails, it was not until three months later, after repeated inquiries by Lexmark seeking additional information that the Cabinet chose to reveal the existence of the Brown e-mail.

While the shredded score sheets and other evaluation documentation may have shown how Xerox came from behind down the stretch to win the evaluators’ hearts, and, therefore the contract, even though it was significantly higher than Lexmark’s, the Cabinet, by failing to preserve the full record of this multi-million procurement, prevented the Court, Lexmark and the public from knowing the full truth about the contract.

Cabinet defends the shredding
The Cabinet, in its filings with the Court vigorously defended its order to destroy the documents. And Donald Speer, an executive director in the Finance Cabinet, defended the records’ destruction in a story that ran in The
Kentucky Gazette earlier this year. Speer said, in effect, that the information from the individual scorers’ sheet, though not the actual score sheets, was used in the final consensus score, and, therefore, met the legal requirements for records preservation. Speer said the scorers were told they could get rid of the hefty documents that were taking up a lot of physical space on their desks and in their offices.

The judge was clearly ticked at the Cabinet
Circuit Judge Thomas D. Wingate ruled on Lexmark’s case on Aug. 22, 2013, and Lexmark lost the contract, but not its destruction of documents claim — the judge kept that part alive.

In his ruling, Wingate cited an Attorney General opinion, which in turn referenced a court opinion, contrary to the Cabinet’s view on preserving documents.

In 04-ORD-187, the Attorney General held that “[w]here the preliminary investigative report or records are adopted as the basis of the final action taken… [the] records forfeit their preliminary characterization and must be disclosed.” Preliminary notes lose their exempt status when “adopted or incorporated into agency action,” according to the AG opinion.

Further, Wingate cited a previous court opinion, West v. Goodyear Tire & Rubber Co., that said, in essence, when a party destroys evidence that could be significant “in pending or reasonably foreseeable litigation,” the jury is instructed that if it believes the missing evidence was destroyed “intentionally or in bad faith,” it may infer that the missing evidence would hurt those who destroyed it.

Such an instruction to a jury is generally appropriate only when three elements are satisfied: (1) the destroying party was “obligated” to preserve the evidence; (2) “the destruction involved greater culpability than mere negligence; and (3) the missing evidence was relevant to the action. Wingate held that Lexmark “presented sufficient evidence on all of these elements.”

And, according to administrative regulation 200 KAR 5:307, pertaining to the retention of records dealing with state procurements bids, “All evaluation documentation, scoring and summary conclusions shall be in writing, and made a part of the file records. …” Moreover, pursuant to the general records retention schedule for state agencies contained in 725 KAR 1:061, the Finance Cabinet was required to retain the “Bid Score Sheet File” for eight years.

The quicksand that the Cabinet stepped into, by destroying the documents, got deeper as the story unfolded. In his ruling, Wingate held that other retention schedules, and case law, require “the Finance Cabinet to retain any record required for current or pending legal action, or where the evidence may be required in a court case.”

He held that given the history of the Lexmark-Xerox battle for the contract, “it was reasonably foreseeable on the day following Xerox’s contract award that Lexmark would file a protest, as they had done after the first RFP. Litigation was expected.”

Therefore, in addition to the judge’s holding that the Cabinet violated the open records law and destroyed evidence “with a degree of culpability greater than mere negligence,” Wingate pointed out that the Cabinet should have expected that the missing documents would be required as evidence in court.

The ruling
In his support for allowing Xerox’s contract award to stand, Wingate cited the statutory authority of a Finance secretary to make contract decisions as provided in the Kentucky Model Procurement Code. He found no fault in
Finance following the procurement laws, except for the destruction of documents part, which he viewed as a serious but separate matter — it’s an Open Records issue, not a procurement code issue, he held.

The judge clearly rejected the Cabinet’s defense on the missing score sheets and other evaluation documentation to the degree that he SEVERED Lexmark’s claim about the destruction of documents, in effect, setting it aside to become a separate action, should Lexmark choose to pursue it.

That leaves Lexmark the options of appealing Wingate’s decision and also proceeding with a separate claim on the destruction of documents at the same time.

Wingate faulted Lexmark as part of his explanation for upholding the contract award to Xerox. He said Lexmark failed to exhaust its administrative appeal by not raising the destruction-of-documents issue in its protest with the Cabinet before filing the lawsuit.

Had Lexmark followed the judge’s logic and included the issue in its administrative protest, the Cabinet would have almost surely held that destroying the documents was not improper, and that would have established a situation entitling the Cabinet to great deference by the Court under Kentucky law, which provides that in procurement decisions, the Finance secretary “shall be entitled to a presumption of correctness.” (KRS 45A.280). So, it was a “Catch 22” for Lexmark.

Related to the whole process, including the administrative appeal process, the judge in his ruling seemed to be saying that he would not be first in reviewing the “destroying documents” issue — the Cabinet had to have the opportunity to review it first.

Lexmark had not made a decision as of our press time as to what its next steps will be.

Lexmark’s only remedy in terms of the Cabinet’s destruction of documents is through the Open Records Act, making it hardly worth the effort. At best, it might recoup part of its attorney fees. And appealing Wingate’s ruling to the Court of Appeals and state Supreme Court is uphill. The same as Wingate was required by law to grant the Cabinet secretary the “presumption of correction,” so it is with the different levels of the courts.

Outlook: We’ve probably heard the last of all of this, unless the attorney general, state auditor or the legislature develops an interest. #

October 2, 2013

Tragedy is a place called Appalachia

Note: I wrote this editorial for The Kentucky Gazette, July 14, 1998. It's still appropriate today, in some ways more than ever. — Lowell Reese

What do you think about when you think of Eastern Kentucky? Al Smith, moderator of KET’s public affairs program “Comment on Kentucky,” asked that question of three distinguished Kentuckians: historian Thomas Clark, author James Still and Courier-Journal editor David Hawpe. Their answers were indeed insightful, concise and...diplomatic.

     Clark noted the region’s natural beauty, rich timber and coal resources, and that Eastern Kentuckians feel an extraordinary and powerful sense of place—a deep emotion about their homeland, to the point that sometimes they are “almost militantly defensive and protective” of Appalachia. The 92-year-old Still said he has outlived all of the town folks and neighbors on Wolfpen Creek in Knott County, but he finds the “mindset somewhat just the same”—the pattern of attitudes toward the land, toward politics, toward religion hasn’t changed much.

     Hawpe also knows the region well (he was born in Pike County and spent summers there growing up, and he covered the mountains as a Courier reporter in Hazard). He said it’s a land of great contradictions: sweet-natured people prone to violence; suspicious-natured people who are “most open and welcoming” once they know you.

     No one said anything directly about abject poverty, forced migration and the region’s Li’l Abner image—which, by the way, many local leaders proudly perpetuate through the annual Hillbilly Days celebration held each April in Pikeville, seemingly under an illusion that someday Toyota might build a factory along the Big Sandy or Cumberland rivers and market the cars worldwide as “Made in Kentucky by hillbillies.”

     Nobody I know is smart enough to singularly figure out how to make Eastern Kentucky equal to the rest of the state in terms of material well-being. But one thing is certain: advertising the region’s workforce as “pork-chop consuming mattress testers” (Li’l Abner’s fortuitous vocation) won’t do it in the sophisticated global world we’re living in. Being a realist, Mammy Yocum might want to drag the Hillbilly Days organizers to the woodshed where Pappy Yocum sometimes took his lumps for lesser lapses.

     A tragedy is when something bad happens to a good person, or to good people; and tragedy is a place called Eastern Kentucky. These are good and decent people—still early American in much of what they believe about values, religion and work. But when it comes to having something to live on, as well as something to live for, the people of this region of our state have been left behind.

      For example, most of the eastern mountain range lies in the 5th Congressional District, represented by Congressman Hal Rogers (R-Somerset). Of the nation’s 435 congressional districts, Rogers’ district is the 7th poorest. In fact, he represents the poorest congressional district of any Republican in the United States. In every one of the 27 counties in the district, except Rogers’ home county of Pulaski, at least 19 percent of the people depend on food stamps to eat and feed their children.

     The people of the mountains are almost one-fourth poorer than the statewide average in terms of per capita income. For every dollar that people in Louisville have in their pockets, the people in Rogers’ district have 60 cents. But poverty is about more than money; it is a condition that breeds hopelessness. According to a national survey in 1994 based on how people felt about their standard of living, Kentucky’s Owsley County—in Rogers’ district—was ranked as the most pessimistic county (hopeless place) in the United States. The people of Eastern Kentucky have less hope about their future than any place in the nation, except some Indian reservations.

     One of the tragedies of Appalachia is that so many of its citizens have had to leave home over the past 50 years to find jobs—just one generation ago, more Eastern Kentuckians lived in Ohio, Indiana, Illinois and Michigan than the number that stayed behind. In 1971, 55 percent of all next-of-kin listed in obituary columns in Eastern Kentucky newspapers lived in those four states.

     Country music star Dolly Parton, in a song she wrote called “Appalachian Memories Keep Me Strong,” captures the soul of Appalachia and the struggle to keep hope alive:

            “Ya oughta go North, somebody told us/’Cause the air is filled with gold dust/and fortune falls like snowflakes in your hands./Now I don’t recall who said it/But we’d lived so long on credit/And so we headed out to find our promised land.... Just poor Appalachian farm folk/With nothing more than high hopes/We hitched our station wagon to a star./But our dreams all fell in on us/‘Cause there was no land of promise/And it’s a struggle keepin’ sight of who we are...Appalachian memories keep me strong.”

     Another tragedy is the dependency on government that the people of Eastern Kentucky have become victims of; a condition that many of the region’s local elite—doctors, lawyers, merchants—are content with, because they get their slice of the government check.

     But as the tissue of real wings is woven from invisibles—like self-reliance, self-government, hopes, dreams, expectations—instead of material things, the seeds of change are the early American values, which still lie deep in the hearts of most Kentucky Appalachians. #