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home : perspectives : hub city room by ron burke October 20, 2014

7/3/2014 3:54:00 PM
Due diligence for us all

Ron Burke
Staff Columnist

The act of due diligence is a term usually associated with legal and business matters. This idea is now becoming more widely used in discussions about local government because of several controversies that have developed surrounding public expenditures by the city and county.

We have all heard and understand the philosophy of buyers beware, and it so no different for governmental bodies and entities. Each year municipalities and counties may enter into thousands, even millions, of dollars worth of contracts. Many of them are relatively routine, but others may well have a stronger caveat attached. This is where the theory of due diligence comes into play.

Under the concept of due diligence, those in authority who enter into agreements or contracts, should exercise care that any reasonable person would, to avoid harm to property. This means that those public officers (elected or appointed) who approve or sign-off on such contracts or agreements, must take steps to insure that they are not unwisely compromising or jeopardizing public tax monies. The proper and healthy function of municipal and county governments depend on the appropriate and responsible use of taxpayer dollars. Spending must be justified and clearly specified. Public officials hold a legal duty as custodians of governmental assets, and can be held accountable under civil statutes, and sometimes, even criminal ones.

What this means in any practical sense, is that those officials who obligate a jurisdiction to any, especially substantial contractual instrument, better be aware of what they are binding public resources to.

This means to have a clear understanding, in writing, as to what type or level of services vendors will be providing, all projected costs for all phases of a project or program, any additional equipment or personnel that could be necessary for implementation at a later date, and what type of support will be extended throughout the duration of the agreement.There should also be documented evidence presented that the proposed vendor has the financial standing and performance reliability to fulfill the contract's expectations.

Sounds fair and easy enough right? Should be, but sometimes it just doesn't happen that way, especially if there is insufficient investigation undertaken.
For us, there are at least two local issues that bear watching and comment.

First, is the unfolding drama on the westside. The ultimate fate of the multi-
use complex will soon be determined by either city council or the voters.The intensity of the debate on this project centers on costs that escalated out of control with insufficient review, official approval, or documentation of the expected financial picture. As the ECM audit indicated,due diligence on the part of officials could have prevented much of these cost overruns and project errors.Whatever action the city takes to cover these shortfalls, taxpayers will probably either directly or indirectly feel the impact of such decisions, particularly if additional borrowing takes place, either in the form of loans or from existing fund reserves or balances.

More recently, the county entered into a contract with a firm called American Cadastra (AmCad), for the purchase of a case management system to put Jim Wells County in compliance with state reporting mandates. The initial investment for program software is reported at about 324,000 dollars. Allegedly official payment has not been finalized, but that does not negate the fact that at some point an agreement was made.

In a number of cases, AmCad has had a successful track record for providing computer and other automated programming and management services.But there were other situations where red flags should have alerted JWC officials to look at potential concerns and questions regarding the company's ability and policies to either complete contract commitments, or the county's future potential to face surprise expenses for AmCad services. Either or both could effect the county's reliance on this or other similar agreements and its vendor relationship with AmCad.

The reason is that there are at least several instances where jurisdictions in various states entered into contracts with AMCAD, but later ran into some serious contractual and financial conflicts..

A few years ago, Virginia Beach,Va., circuit courts contracted with AmCad but gradually found itself facing controversies regarding additional and unanticipated costs for extra equipment and other technical support. A similar situation occurred in Clark County Nevada where billing changes resulted that had allegedly not been approved by county officials there.

Most recently in Oklahoma, the state supreme court terminated its contract with AmCad when faced with both delays and rising costs to put the system into operation. In these and a few other cases, the projects became more complex and expensive than either the government entity or vendor expected. These unplanned expenditures added even more delay and costs to the projects.

Reportedly, it is the Oklahoma decision that has set off a spiral of actions now resulting in the shocking news to officials in Bexar County that AmCad is apparently pulling out of its over $18 million dollar contract with them, shutting down its San Antonio area operations, and laying off employees there.The company reports that it is facing financial difficulties.

What JWC officials must now answer with regards to their own AmCad contract is what research did they undertake beforehand to verify the financial and credit health and status of the firm prior to reaching or signing any agreements, and, if they were aware of the potential financial or contractual risks or conflicts involved with any possible agreements based on these and other cases.

Further, it will be interesting to see what steps or provisions of any agreement were included to protect the interests of the county from any possible future or unexpected costs or liabilities associated with such a project and agreement. For example, was a performance bond included or required, and what is the language of a contract in terms of dealing with other costs that could arise in such areas as needed or recommended software enhancements, training of employees, additional hardware or other technical support with, or without, the county's explicit authorization.

There are powerful lessons that should be learned from both the westside pool complex project and the AmCad cases. Our elected and appointed officials have a legal responsibility to insure proper management of public programs and obligations made with public revenues. It is also incumbent on taxpayers to hold them accountable for their actions and decisions because the lack of due diligence can carry an expensive price tag for all of us. Due diligence means officials beware.

Reader Comments

Posted: Tuesday, July 15, 2014
Article comment by: Cheri Snelling

Due diligence has never been learned by the city council OR Mayor! Apparently! You didn't even mention the fiasco with the new so called City Manager! What happened to "vetting" a person? Oh wait, the people who voted in the ones who hired this man do not know the meaning of this frustrating for those of us who DO practice this! The Swimming HOLE is a prime example!!!! and they don't stop that bleeding puss hole either! We needed a pool......we did NOT need MILLIONS of EXTRAS! It's Alice, Texas, not Houston or Austin, or even San Antonio.......

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