STATE BOARD OF EXAMINERS
MINUTES – Regular Meeting
January 13, 2015 – 10:00 a.m.
Joe R. Williams Building, 5th Floor Conference Room A
The regular meeting of the State Board of Examiners was called to order pursuant to Idaho Code §67-2002 and by the order of the chair.
The following board members were present: Governor C.L. “Butch” Otter, Attorney General Lawrence Wasden, and Secretary of State Lawerence Denney. State Controller Brandon Woolf recorded the proceedings of the meeting.
Mr. Woolf introduced the consent agenda items.
Mr. Wasden moved to approve the consent agenda. Mr. Denney seconded the motion. The motion passed on a unanimous voice vote.
1. Minutes - Approved
Approval of official minutes for the meeting of the Board of Examiners on December 15, 2014.
2. Bureau of Homeland Security – Approved
Date to Board
Response to Trimethylamine leak from a tanker trailer. (Kootenai County)
Response to radioactive material discovered in residence. (Ada County)
3. Military Division – Approved
Ratification of military contract for the following project:
NGBID-15-C-0011 for State of Idaho Military Division project: Interior Renovation – Building 669
4. Department of Health and Welfare – Approved
Request that $162,365,900 be transferred from the General Fund to the Cooperative Welfare Fund #0220 during the 3rd Quarter of Fiscal Year 2015. In addition, that $64,450 be transferred from the Drug Court, Mental Health & Family Court Services Fund #0340 to the Cooperative Welfare Fund #0220 during the 3rd Quarter of Fiscal Year 2015.
5. Division of Financial Management – Approved
Request to approve a claim for attorney fees and costs in the case of Susan Latta and Traci Ehlers, Lori Watsen and Sharene Watsen, Sheila Robertson and Andrea Altmayer, Amber Beierle and Rachel Robertson v. State of Idaho. The award is $397,300 in attorney fees and $4,363.08 in non-taxable litigation expenses. The amounts shall be paid with interest at the rate of 0.20 percent per annum from the date of the order. It is recommended this claim be referred to the Constitutional Defense Council for consideration of payment.
6. Department of Administration, Division of Purchasing - Approved
Request to recognize the assignment of contract number CPO02426, a contract for a Pension Administration System, issued on behalf of the Public Employee Retirement System of Idaho from Tegrit Group, LLC to Tegrit Software Ventures, Inc.
Discussion: Mr. Wasden commented that all requirements were met with posting proper notice of the meeting.
Ms. Valerie Bollinger from the Division of Purchasing explained that the contract is for a pension administrative system; the Division of Purchasing did a solicitation on behalf of PERSI. MERS of Michigan is Michigan’s version of PERSI. Like many states, they have a separate investment arm to protect them for liability and tax reasons. MERS Investment Group was the controlling owner of Tegrit Group, which is the original and current contractor for this contract. Tegrit Group was owned as an investment for the investment arm of MERS, but they were also the contractor for the MERS pension administration system. MERS was happy with Tegrit from a pension administration system standpoint, but the investment arm was not happy with the returns on investment. They decided to divest Tegrit Group. There were a couple of different divisions; the one that involved the pension system was the technology division. In August of 2014 the technology division and its assets were sold to Tegrit Software Ventures, which is an employee-owned company of 12 shareholders, 11 of whom are former employees of Tegrit Group. They formed the new company for the purpose of buying the assets (software, contracts, etc.).
Gov. Otter asked how they acquired the assets.
Mr. Don Drum, executive director of PERSI, answered that the Michigan MERS Investment Group owned Tegrit Group. Tegrit Group was comprised of contractors, but they conducted all the IT services for Michigan MERS. Between Michigan MERS’ new executive director and the investment group, they decided that they should take these contractors and clearly designate them and their Tegrit Group and create a contractual relationship with them for the work that was being done at MERS.
Gov. Otter asked if that was because of the liability.
Mr. Drum said it was done primarily because of a philosophical decision from the executive director that these were contract employees, and he would like to have them designated as contract because there is a different way to manage contractors than staff positions. They were continuing to use Tegrit Group and Tegrit Group was actually expanding the service they were providing to Michigan MERS. Tegrit Group was not achieving the level of return that the investment group wanted. It was recommended to the executive director that they sell Tegrit Group and get it out of the investment portfolio for MERS because they were not achieving the level of return the investment group desired. When PERSI learned of this, Mr. Drum contacted the executive director of Michigan MERS and expressed concern that Idaho has a project going on that is dependent on this group. MERS’ executive director stated that the individuals who are key to Idaho’s contract have an ownership in the interest of Tegrit Ventures to make sure the project continues forward.
Gov. Otter said the four employees out of the 12 that are key to our project were providing the technology – what portion of the company do they own?
Ms. Bollinger answered that most of it was in the form of a note from Tegrit Group. The employees owe Tegrit the money back.
Gov. Otter asked what sort of financial liability the four employees have in order to motivate them to make this project a success.
Mr. Drum said that the Vice President of Tegrit Group had to use his house and some of his savings to acquire the company.
Ms. Bollinger commented that when any request to recognize an assignment of a contract comes to the Division of Purchasing, it is analyzed and asked if the proposed company is as good or better than the existing contract they currently have. She noted that there are three options at this time. The first option would be to assign the contract. The second is to refuse to recognize the assignment of the contract and continue with the status quo. Or third, refuse to recognize the assignment of the contract and do a new solicitation. To do a new RFP would be a huge loss. We have already paid around $5.2 million on this contract. The full cost of implementation is $10 million. Right now we have a contract with Tegrit Group and we have approved a subcontract with Tegrit Software Ventures. So Tegrit Software Ventures is doing the work, but our contract is with Tegrit Group. Tegrit Group at this point is a shell company with no assets or employees or ability to perform the contract because they do not own the software, source code, or intellectual property. There is a danger that if we continue, Tegrit Group could file for bankruptcy or be dissolved any day. We have no privy of contract with Tegrit Software Ventures and no way to guarantee that they get paid for the work that they are doing, because we have to write a check to Tegrit Group, and have no way of knowing if they are passing the money along to the people doing the work. If we do assign the contract, there are risks involved. This is a new entity and they do not have proven financial stability, however, they do have a real interest in succeeding on this project. Because the employees are shareholders, they will see returns. If they are able to successfully implement this project for PERSI, it will be a selling point when they try to get new business.
Gov. Otter asked if this is their only project.
Ms. Bollinger stated that it is not. They have a project for the City of Fresno, and some other smaller projects.
Mr. Drum added that MERS not only plans to use Tegrit Software Ventures, but is dependent upon them and their success to support the MERS system. MERS has no other avenue to support their system.
Gov. Otter asked where the profits go.
Ms. Bollinger answered that they have to write the check to Tegrit Group because that is who our contract is with.
Mr. Drum added that all the money flows through the Tegrit Software Ventures. He stated that when they first learned Tegrit Group was considering selling their assets, we immediately spoke to MERS and expressed concern with the sale. He said they have a great working relationship with MERS as well as the employees doing the work. PERSI has discussed this with the deputy attorney general assigned to their office, and PERSI’s board. There are 765 employers (counties, cities, school districts, etc.) who are going to utilize this system. To date, 740 of the employers have made the conversion to the new system. This project is going very well.
Mr. Denney asked if there was any performance bond required from Tegrit Group.
Ms. Bollinger answered that this is a contract that is not a good situation for a performance bond. Performance bonds are used in situations where if there is a problem, the money is then used for completion of the project. They often use performance bonds in construction. For this project, it requires such unique software that no one else could possibly finish the project. Once the system has been implemented, we have a 5 year contract for support and maintenance for the system. If the contractor is unable to perform, then we obtain the source code. We could then take the source code to another contractor and they would be able to give us the needed support. There is a backup plan for a worst case scenario.
Gov. Otter asked how the source code is retrieved.
Ms. Bollinger answered that it is in escrow with a third party. In this kind of IT contract, the most important thing is to have good contract management and monitoring. PERSI is doing a great job at monitoring.
Mr. Wasden asked Ms. Bollinger if the Division of Purchasing has done its due diligence in regards to Tegrit Group and Tegrit Ventures.
Ms. Bollinger answered in the affirmative.
Mr. Wasden asked Mr. Drum if PERSI has done its due diligence in regards to the spinoff to Tegrit Ventures.
Mr. Drum answered in the affirmative.
Mr. Wasden asked if Mr. Drum had any questions as to the performance to Tegrit Group up to this point with regard to contract services they have rendered.
Mr. Drum said they have no issues with Tegrit Group; they were a great partner on this project.
Mr. Wasden asked Mr. Drum if he has any concerns about Tegrit Venture's performance on this contract with regards to financial or practical performance issues in the future.
Mr. Drum said that it is one of the best working relationships he has ever had with an IT vendor. They seem very interested in the success of our project because their future is tied to it.
Mr. Otter asked if the project is on schedule for April of 2016.
Mr. Drum answered that they are on schedule. The vendor would like to complete it sooner, but Mr. Drum is more interested in completing it correctly.
Resolution: Mr. Wasden moved to approve item 6. Mr. Denney seconded the motion. The motion carried on a unanimous voice vote.
Gov. Otter requested that on a timely basis he would like to have a brief report of where we are with this project. If there are any issues with the relationship, he would like to know immediately.
7. Internal Revenue Service
Beginning on January 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:
· 57.5 cents per mile for business miles driven, up from 56 cents in 2014
· 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
· 14 cents per mile driven in service of charitable organizations
8. Office of the Attorney General
a. Notification that Alan R. Harrison of Alan R. Harrison Law, PLLC, has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose representing the State of Idaho, Idaho Transportation Department, in any appeal from a hearing officer’s decision filed pursuant to the authority of Idaho Code §18-8002A, Automatic License Suspension Program.
b. Notification that Edwin L. Litteneker, Attorney at Law, has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose representing the State of Idaho, Idaho Transportation Department, in any appeal from a hearing officer’s decision filed pursuant to the authority of Idaho Code §18-8002A, Automatic License Suspension Program.
c. Notification that Stephen J. Muhonen of the firm of Racine, Olson, Nye, Budge & Bailey, Chtd., has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose representing the State of Idaho, Idaho Transportation Department, in any appeal from a hearing officer’s decision filed pursuant to the authority of Idaho Code §18-8002A, Automatic License Suspension Program.
d. Notification that Susan K. Servick, Attorney at Law, has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose representing the State of Idaho, Idaho Transportation Department, in any appeal from a hearing officer’s decision filed pursuant to the authority of Idaho Code §18-8002A, Automatic License Suspension Program.
e. Notification that Timothy J. Stover of the firm of Worst, Fitzgerald & Stover, PLLC, has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose representing the State of Idaho, Idaho Transportation Department, in any appeal from a hearing officer’s decision filed pursuant to the authority of Idaho Code §18-8002A, Automatic License Suspension Program.
f. Notification that Bruce O. Jolly, Jr. of the firm of Reed & Jolly Law, PLLC, in Oakton, Virginia, has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose advising the Idaho Department of Finance with respect to Field of Membership issues presented in a proposed merger of a southern Idaho credit union and a northern Idaho credit union under the Idaho Credit Union Act.
g. Notification that Paul J. Augustine of the firm of Augustine Law Offices, PLLC, has been appointed pursuant to Idaho Code §67-1409 as a Special Deputy Attorney General for the purpose representing the State of Idaho, Industrial Special Indemnity Fund, in the matters of Darline Hensley and Lisa McCullough.
9. State Insurance Fund
a. Estimate of the State Insurance Fund expenses to be paid by sight drafts for the month of
b. Estimate of the Petroleum Clean Water Trust Fund expenses to be paid by sight drafts for the month of November, 2014.
Estimated expenditure for workers compensation claim costs, dividends and premium refunds
Funds Expended in November, 2014:
Workers Compensation Claim Costs
Estimated expenditure for Petroleum Clean Water Trust Fund
Funds Expended in November, 2014:
Mr. Wasden moved to adjourn the meeting. Mr. Denney seconded the motion.
There being no further business before the board and on motion duly made and seconded, THE MEETING OF THE STATE BOARD OF EXAMINERS WAS ADJOURNED at 10:41 a.m.
__________/s/ C.L. “Butch” Otter__________________/s/ Brandon Woolf ____________
C.L. “Butch” Otter, Chairman of the Board and
Governor of the State of Idaho
Brandon Woolf, Secretary of the Board and
Idaho State Controller