Louisiana Voice

If Gov. Bobby Jindal’s privatization pilot program is any indication, legislators might wish to take a long, hard look before allowing the governor to move forward with privatizing the Office of Group Benefits, prisons, Medicaid or education.

Former Commissioner of Administration Angéle Davis on June 3, 2010, signed a contract whereby F.A. Richard & Associates (FARA) of Mandeville was to assume the operations of the Louisiana Office of Risk Management. Also signing the agreement were State Risk Director J.S. “Bud” Thompson, and FARA President/CEO Todd Richard.

Now, it appears that the terms of that contract with FARA may have been violated not once, not twice, but probably three times.

Under terms of that contract, the state agreed to pay FARA “a maximum amount of $68,118,971.” In May of this year, barely 10 months later, Thompson appeared before the Joint Committee on the Budget to request an amendment to FARA’s contract in the amount of $6,811,897, or exactly 10 percent, “not to exceed $74,930,868.”

Legislators were somewhat piqued to learn to learn from ORM Assistant Director Patti Gonzales that a little-known provision allows a one-time contract amendment of up to 10 percent by the Office of Contractual Review without concurrence of the legislature. The Office of Contractual Review works directly under the supervision of the Commissioner of Administration.

Then, less than two weeks after legislators learned they had no recourse in the matter, it was learned that FARA had been sold to Avizent, a national claims and risk management service provider based in Columbus, Ohio. Obviously, the deal was already in the works at the time the amendment was executed.

Understandably, that raised the issue of whether the contract amendment was needed more to sweeten the deal for Avizent than for FARA to carry out its contractual obligations.

No sooner had the dust settled from that transaction than in November of this year it was learned that ORM, a $400 million state agency, was going to be run—for a while, at least—by York Claims Service of New York City.

York operates as an independent adjustment company and third party administrator and is a subsidiary of York Insurance Services Group of Parsippany, New Jersey.

Close on the heels of that revelation, it was learned Cherie Pinac, manager of FARA’s Baton Rouge office, had submitted her resignation to accept a position with local claims adjusting firm Hammerman & Gainer. About that same time, it was also reported that Hammerman & Gainer would be subcontracted to take over ORM’s property claims.

But under terms of Section 11.0 (“Assignment”) of the June 3, 2010, FARA contract, it is specifically spelled out that “Contractor shall not assign any interest in this contract by assignment, transfer, or novation (Novation: the substitution of a new contract for an old one or the substitution of one party in a contract with another party; the replacement of existing debt or obligation with a new one.), without prior written consent of the state. (emphasis ours).

Under terms of Section 15.0 (“Subcontractors”), it is also stipulated that “The contractor may, with prior written permission from the state, enter into subcontracts with third parties for the performance of any part of the contractor’s duties and obligations.” (emphasis ours).

With that in mind, at 6:47 a.m. on Wednesday, Dec. 7, we made the following written request of Commissioner of Administration Paul Rainwater:

“Pursuant to the Public Records Act of Louisiana, R.S. 44:1 et seq., I respectfully request the following information:

The written consent provided by the Division of Administration to F.A. Richard & Associates (FARA) and/or Avizent and/or York to subcontract or otherwise assign any portion of the operations of the Louisiana Office of Risk Management, specifically PROPERTY and/or LIABILITY lines claims to Hammerman & Gainer, Inc., of Baton Rouge, Louisiana, or any other subcontractor, said lines being inclusive of Contract No. 692289 and originally assigned to FARA.”

Rainwater apparently chose to ignore our request even though the state public records law says that any public record must be made available immediately upon request unless the record is unavailable. In such case, the custodian of the record (Rainwater) must respond within three working days to say when the record will be available for examination.

As second request was then made on Friday, Dec. 9 at 2:22 p.m.

Again, nothing.

So, at 9:17 p.m. on Sunday, Dec. 11, we sent an email to David Boggs of the Office of General Counsel for the Division of Administration (DOA) asking that he kindly remind his boss of the terms of the state law as well as the civil and criminal penalties (fines, attorney fees and imprisonment of up to six months).

While making it clear that an amicable resolution was preferred, we nevertheless made it clear that we would pursue legal remedies if the records were not provided by the close of business on Wednesday, Dec. 14.

At 4:53 p.m. On Monday, Dec. 12, the following email was received from David Boggs:

“The Division of Administration has received your public records requests dated December 7 and 9, 2011. You requested three separate consent letters provided to F.A. Richard & Associates, Inc. The Division of Administration has no records which are responsive to your request.

David W. Boggs
Office of General Counsel
Division of Administration”

So there we have it:

• No “prior written consent” for Avizent to assume the $68.1 million, er, $74.9 million contract with the State of Louisiana to take over ORM;

• No “prior written consent” for York Claims Service to assume the contract;

• No “prior written permission” for Hammerman & Gainer to assume handling of ORM property claims.

Considering the manner in which DOA has failed to enforce the terms of the FARA contract, which are quite plain in both simplicity and intent, it should send up all kinds of red flags and set off alarms throughout the House and Senate.

In seeing the way in which Commissioner of Administration Paul Rainwater chose to ignore our indisputably legal requests for public records (until a lawsuit was threatened), it is abundantly apparent that there was an egregious lack of oversight in the way ORM is being run and in the fast and loose manner in which a $74.9 million contract is shuttled from one vendor to another—with no apparent authority to do so.

Several companies submitted proposals to take over the operations of ORM. Avizent was not among them. Nor was York Claims Service. Even Hammerman-Gainer, which expressed an early interest, never submitted a proposal.

Questions need to be asked:

• Why was a $6.9 million amendment to the FARA contract necessary when FARA was obviously already negotiating a deal with Avizent?

• Why did Avizent sell out to York?

• What role did the ORM contract play in those transactions?

• Why were written terms of the contract with FARA not enforced?

• How did Avizent, York and Hammerman & Gainer manage to enter into the picture?

• Should the state’s contract with FARA be revoked and/or declared null and void?

Hopefully, at least a few curious legislators will ask these—and more—questions before Bobby Jindal is allowed to privatize the entire state.