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Posted on 05/11/2002 5:11:11 AM PDT by randita
State conflict-of-interest loophole for consultants
Technology experts who were hired to address Y2K issues weren't asked to disclose potential problems
Robert Salladay, Lynda Gledhill, Chronicle
Sacramento Bureau Saturday, May 11, 2002
Sacramento -- Because of a loophole in state law, the Davis administration never required the consultants it hired to avert a Y2K crisis to disclose potential conflicts of interest with technology companies.
At least two of Davis' Y2K consultants left their government consulting jobs and were hired immediately by companies that had state technology contracts. One worked for a company that got $3.2 million in Y2K work, and another became managing director of a company that helped set up the state's Web portal.
Nothing about those arrangements is considered illegal, and there is no evidence that conflicts existed. But they are an example of the revolving door in state bureaucracy that enriches a select group of technology consultants. That culture is being examined by the state Legislature as it also investigates a disputed $95 million state contract with the software company Oracle from 2001.
Attorney General Bill Lockyer announced this week that scores of consultants hired by Davis to purchase power during the energy crisis did not have large amounts of investments in energy companies and, therefore, were not conflicted.
Roger Salazar, a spokesman for Davis' campaign, noted Lockyer's exoneration and warned against making comparisons between the energy crisis and the current Oracle controversy. Salazar said "detractors of the governor . . . are now in the flight of hysteria over the Oracle contract."
One of those detractors is Secretary of State Bill Jones, who campaigned aggressively against Davis during the energy crisis. Jones, who lost to Republican Bill Simon, decried the governor's policy of not requiring conflict- of-interest statements on the Y2K consultants as ridiculous and said it is damaging the public perception of government.
"We found the same arrogance of power in the energy situation," Jones said. "This is such a ridiculous pattern of unethical conduct. It worries me greatly because it erodes the public confidence in government."
DISCLOSURE NOT REQUIRED
Almost immediately after his inauguration in 1999, Davis hired a strike team of technology experts to manage California's Y2K computer retrofit. The consultants were not asked to fill out standard conflict-of-interest forms because they had no part in signing contracts for the state.
Davis spokesman Steve Maviglio said Friday the administration does not have the conflict-of-interest forms because "state law does not require them." Unlike the energy traders, the five major Y2K consultants were simply advisers and coordinators, not purchasers.
During the energy crisis, the Davis administration hired two high-profile consultants who were not required to disclose potential conflicts of interest. The administration said Wall Street consultants Joseph Fichero and Michael Hoffman were technically contractors -- people hired to do a specific task for a limited period of time. They made about $250,000 from the state.
Last summer, Davis fired five other consultants who acknowledged that they owned stock in Calpine Corp., a power generator based in San Jose that has received about $13 billion in electricity contracts from the state over the next 20 years.
Lockyer cleared those consultants Thursday of any wrongdoing, but the Fair Political Practices Commission is continuing to investigate the matter. The commission fined the Department of Water Resources, which hired the consultants, $69,500 for failing to require that the consultants fill out disclosure forms.
WORKERS RECUSE THEMSELVES
This year, a review by The Chronicle of statements of economic interest for managers at the state's technology data center showed that while most employees did not have reportable income, several have had to recuse themselves from some state business.
For example, an assistant director at the Stephen P. Teale Data Center has more than $1 million in Intel stock as well as holdings in Cisco Systems. The individual attached a letter recusing himself from all state matters dealing with those two companies.
Broadly, a look at the state technology contracting world shows a select group of people moving freely in and out of government and technology companies.
Interest in this so-called revolving door grew after an April 16 state audit revealed that the Davis administration had bought 270,000 software licenses from Oracle when 50,000 would have been more prudent.
Lawmakers, the state attorney general and the FBI are looking into the hastily negotiated deal. Much of the attention is focused on a former Davis administration official who accepted a $25,000 campaign check for the governor from Oracle Corp. just days after the state signed the no-bid contract. Davis said he returned the check this week.
Y2K CONSULTANT QUESTIONED
The Joint Legislative Audit Committee has begun asking questions about David Lema, who signed two Y2K contracts with the state worth nearly $900,000. Lema is owner of an Elk Grove consulting firm that advises technology companies on how to wade through the government bureaucracy to secure state contracts.
While on the state Y2K project, Lema hired technology consultant William Molina. Both of them were part of the Davis Technology Transition Team that took over a large portion of the state's Y2K response at the Department of Information Technology and the Teale Data Center.
Before and after he was hired by Davis, Lema had consulting contracts with Logicon, the technology company based in Virginia that did about $3.2 million Y2K consulting work for the state. Lema said he canceled every one of his technology clients as soon as he started working for the state to avoid the appearance of conflict.
The other consultant, Molina, left the state's Y2K project after it was done and went to work as managing director of BroadVision, a Silicon Valley firm the state would subsequently hire to help on a $5 million project redesigning the state's Web site.
BroadVision got about $775,000 for its part in the Davis administration Web portal work. Sources said Molina had nothing to do with the Web portal project,
however, but that he dealt with salespeople from BroadVision.
Molina could not be reached this week about his Y2K or BroadVision work. Molina was appointed by Davis in 2001 to an unpaid position on the Commission of the Californias, which promotes economic development with Baja California.
'TWILIGHT ZONE'
For his part, Lema has been frustrated with seeing his name tossed about the Legislature as it probes the Oracle contract. Lema said he had nothing to do with the 2001 software deal, and he had nothing to do with Logicon getting its Y2K work.
"It's like an episode of the 'Twilight Zone,' " said Lema, who was director of the Teale Data Center in the 1980s. "It doesn't compute. It's not supported by the facts. The only thing that gives me comfort is I know what the truth is. "
Some companies that lost out on the state Web portal contract are complaining about the way the Davis administration handled the project. None of the contracts for the $5 million system were put out through competitive bidding, including a $775,000 piece that went to BroadVision, Molina's company.
Arun Baheti, who resigned recently as the governor's director of e- government after admitting to accepting the $25,000 check, said the Web portal project was split up into several parts -- all under the competitive bidding threshold -- in order to find the best companies for each individual job.
BroadVision provided the portal software, Interwoven provided content management, Broadbase provided analytic software, and Deloitte Consulting put the package together. Baheti said if the state signed a single $5 million contract for the entire Web portal, it might not get the best products for individual parts.
"What we did was follow the industry best practice," Baheti said. "I think if you look at our architecture and the way we put this system together, you'll find that it is absolutely the way it's done."
E-mail Robert Salladay at bsalladay@sfchronicle.com and Lynda Gledhill at lgledhill@sfchronicle.com.
©2002 San Francisco Chronicle Page A - 1
My confidence is eroded!
But then, there was so little to start with!
calgov2002:
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