Before landing a $3.1 million no-bid state contract on Gov. Steve Beshear’s last day in office, the software company that counts a Beshear cabinet secretary’s husband as a “partner” had already received $8.1 million worth of state business outside of the competitive bidding process.
SAS Institute, a Cary, N.C., technology company, was hired in 2012 to develop a fraud-detection system for Kynect, the state-owned health insurance exchange. It didn’t have to bid for a state contract of its own. Instead, according to Kentucky Finance & Administration Cabinet records, it piggybacked into the job through a “modification” of the main contract with Deloitte Consulting.
As the arrangement was taking shape, one man -- Frank Lassiter of Midway, Ky. -- had connections on both sides. For SAS, he had just begun serving as one of more than 1,000 technology “partners” listed on its website. For the Beshear administration, Lassiter was executive director of the Cabinet for Health and Family Services’ Office of Administrative and Technology Services until 2011. His wife, Mary Lassiter, was state budget director before being named secretary of Beshear’s Executive Cabinet in 2009. Both contributed money to Beshear’s re-election campaign in 2011.
Jessica Ditto, spokeswoman for Kentucky Gov. Matt Bevin, said the governor’s office is weighing the possibility that political -- and marital -- connections paved the way for SAS.
“There is a clear indication that the husband of a close adviser to former Gov. Beshear may have unfairly benefited from the Kynect contract,” Ditto said by e-mail. “We continue to evaluate whether these are isolated incidents or represent a broader pattern of abuse by the Beshear administration.”
Beshear did not respond to a voicemail or email inquiries sent to him at his Stites & Harbison law office in Lexington. Mary Lassiter disclosed her husband’s consulting relationship with SAS on her annual personal financial disclosure forms with the state. In an e-mail, she denied playing any role in dealings between Frank Lassiter’s companies and SAS.
“I abstained from any discussions about any of those entities if and when they ever bid on state work,” Mary Lassiter wrote. “I had no influence on any part of those contract processes.”
Frank Lassiter has not returned several phone calls to his company, HealthTech Solutions, in Frankfort.
The Courier-Journal first reported that Lassiter’s group received a $3.1 million no-bid contract on Beshear’s last day in office. But the state says that SAS will have been paid $11.2 million by the end of 2016.
In its 2012 proposal for the Kynect contract, Deloitte told the state it would be enlisting SAS as a “value-added services” provider.
The Kynect request for proposal sent to prospective bidders allowed for such supplemental services. In its pitch, Deloitte said it incorporates the products of many vendors in its technology solutions. Deloitte won the contract for $101.5 million.
“This provides Deloitte the ability to leverage these relationships for providing benefits to CHFS that includes priority support and access to internal troubleshooting information,” the Deloitte proposal stated.
Thus, Deloitte brought SAS on board. SAS spokesman Trent Smith said by email that it is “common” for systems integrators like Deloitte to partner with other companies to provide analytic capabilities as part of a larger, competitively bid contract.TIMELINE
October 2012 -- Deloitte Consulting is awarded $101.5 million contract by Kentucky Cabinet for Family and Health Services to develop and implement the Kynect health insurance exchange. January 2013 -- The Deloitte contract is modified by adding SAS Institute to provide a fraud, waste and abuse prevention system. Total cost: $6,528,000. May 2013 -- Through another modification of the Deloitte contract, SAS develops and maintains a fraud-prevention system for the Kentucky Department of Revenue. Total cost: $958,000. June 2014 -- Through another modification of the Deloitte contract, SAS develops a fraud-prevention system for the Kentucky Office of Employment and Training. Total cost: $575,000 December 2015 -- SAS, on Gov. Steve Beshear’s last day in office, receives a new, no-bid contract for $3,079,000 over one year to continue providing fraud-prevention services to the state. Total value of business to SAS: $11,140,000 source: Kentucky Finance & Administration Cabinet
Smith said Frank Lassiter “helped our efforts” to win part of the Kynect job by advising SAS how it could help deliver anti-fraud measures to the state, as well as by helping to craft its proposal to Deloitte.
Three months into Bevin’s term as governor, the Kentucky Revenue Department was surprised that contract modifications and add-on provisions mushroomed into an $8.1 million deal for SAS. But only the $3.1 million contract in December is under review by the administration, said department spokeswoman Pamela Trautner.
“There are concerns as to why the prior administration extended this contract with SAS,” she said. “While we cannot speak to decisions made by officials in the previous administration, the Finance Cabinet takes its duty to adhere to Kentucky’s model procurement code very seriously. This includes close examinations of any procurement, especially those that did not involve a competitive process, that is, ‘no-bid’ contracts.”
The Deloitte contract to develop Kynect was modified in 2013 and 2014 to add fraud-detection capability to the Revenue Department, for tax filings, and to the state’s Office of Employment and Training, for unemployment claims. Trautner said SAS was paid $6.5 million for its work on Kynect, $958,000 by the Revenue Department and $575,000 by the Office of Employment and Training.
At least one other state noticed that SAS won the Kynect fraud-prevention job without having to compete with other vendors.
“A formal RFP [request for proposal] process was avoided by expanding existing technology contracts with Deloitte to include the fraud-prevention project,” the Arkansas Department of Finance and Administration stated in a 2014 study of an anti-fraud system of its own.
While the Bevin administration examines the latest SAS contract, one former state legislator and spending hawk, Bob Heleringer of Louisville, said there’s not enough scrutiny of state contracts. A Republican, Heleringer served in the state House of Representatives from 1980 to 2002.
“This is outright favoring of someone in his administration on his way out the door,” he said of Beshear and the contract approval process. “The public doesn’t get it. I guess it’s too inside baseball, but the problem is systemic and incestuous. It’s mind-boggling.”
Reporter James McNair can be reached at jmcnair@kycir.org and (502) 814.6543.
