THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, May 21, 1995 TAG: 9505210055
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY DAVID M. POOLE, STAFF WRITER
DATELINE: RICHMOND LENGTH: Long : 128 lines
One of the first contracts under Gov. George F. Allen's plan to privatize portions of state government was awarded last week to an Allen appointee, despite a warning from the attorney general's office that the deal had the ``smell'' of a conflict of interest.
G.G. ``John'' Crump III, an Allen campaign contributor appointed to oversee a privatization panel, signed a payroll administration contract on Thursday that could be worth up to $270,000 a year.
Allen spokesman Ken Stroupe said the governor and his staff had been unaware of the contract and that a quick review of the case Friday afternoon turned up nothing improper.
Allen aides said they would conduct an internal audit to dispel any possible appearance that Crump received favorable consideration because of his high-ranking state job or his ties to Allen.
``We will satisfy any concerns we might have and make a report to the governor,'' said Finance Secretary Paul Timmreck, whose office will conduct the audit.
The Crump contract raises ethical questions that could become more commonplace as the Allen administration moves forward with privatizing state government functions ranging from prison construction to mental health hospitals, from highway design to liquor sales.
The state's conflict-of-interest and ``revolving door'' statutes were not written in anticipation of an exodus of state employees who might start companies to contract with their former agencies.
Will their ``insider'' knowledge of state government and friendships with former colleagues give them an unfair advantage?
``It's an interesting public policy question,'' said Timmreck, who nonetheless said he thought the current laws and state's legacy of ``clean'' government would prevent problems.
Timmreck turned the question around: ``Is it fair to deny former state employees an opportunity to get out there and get involved in private business?''
John Crump said he broke no laws, but conceded that he had the inside track for a contract to administer some 30,000 supplemental insurance polices that state employees finance through payroll deduction.
``My experience gave me a competitive edge both in obtaining the contract and providing the service,'' he said.
Crump is a former assistant director in the state comptroller's office, the same agency that awarded the payroll contract. He had overseen the state's centralized payroll system, including processing of payroll deductions for supplemental policies that employees signed with third-party insurance companies.
Crump took a leave from the comptroller's office in March 1994, to join the staff of Allen's ``Strike Force'' on government reform. The panel eventually recommended scores of government services that could be privatized, including the supplemental payroll deductions.
At the same time, Crump was vice president of a company, Employers Resource Management Co., eager to bid on the payroll deduction contract.
In December, Crump left the strike force shortly after the comptrollers' office began seeking bids for the payroll contract.
He was still on the comptroller's payroll - though on leave - in January when he began negotiating with the agency on behalf of Employers Resource.
On Feb. 1, Crump left state service under a special waiver that allowed him to depart early and still receive benefits under an unprecedented buyout plan aimed at thinning the ranks of state workers.
The buyout plan barred Crump from offering his services as an individual contractor with comptroller's office for two years. The ``revolving door'' prohibition, however, did not apply as long as Crump worked through a company such as Employers Resource.
Crump, a principal investor in Employers Resource for nearly a decade, touted the firm's record of handling payroll functions for various businesses. But Crump's biggest selling point was the fact that he had supervised the very functions that the comptroller's office wanted to turn over to the private sector.
In a Jan. 30 document to the agency, Crump wrote: ``Mr. John Crump, until recently the assistant comptroller for the Department of Accounts, uniquely understands more than any other potential service provider the miscellaneous deduction administration needs of the commonwealth. He also understands the employees and agencies to be served.''
Three other companies submitted proposals. In late February, Comptroller William E. Landsidle checked with the attorney general's office if it were proper for Employers Resource to compete for the contract.
The state attorney general's office concluded that Crump's multiple roles - state employee, Allen's privatization advocate and entrepreneur - gave rise to the appearance of a possible conflict of interest.
``While I am unable to identify any technical violation of statutory law, this situation does not, in my opinion, pass the `smell' test,'' wrote Assistant Attorney General Donald R. Ferguson.
``. . . I am hesitant to endorse the participation of Employers Resource in this procurement process.''
Crump, who, with his wife, contributed $1,375 to Allen's campaign in 1993, was allowed to remain in the bidding process.
Landsidle, the comptroller, said Friday that he made the decision because he thought the attorney general's office had ``misunderstood and misweighed'' Crump's involvement with the strike force and agency.
Landsidle said that Crump had little role in the strike force's recommendation to privatize supplemental payroll deduction. Landsidle said he had been recommending the change for years because he could see no justification for using state resources to process what amounted to private contracts between employers and third-party insurance companies.
Landsidle also noted that Crump had ceased to work at the agency many months before the procurement process began.
Crump's company got the contract in March after it edged out the nearest of three competitors, S.F. & C. Insurance Associates of Baltimore. The five-member review panel scored each company based on various qualifications. The final tally was Employers Resource, 86.5; S.F. & C., 85.4.
Bid documents show that Crump had a higher score because S.F. & C. received unusually low scores in several categories from two panel members whom Crump had supervised.
Landsidle said there was no way to exclude those two employees, because they were the agency's most qualified individuals on payroll deductions.
``How do you do this unless you use the people who have expertise?'' he said.
Edward Stringer, president of S.F. & C., declined comment Friday, saying he was unaware of the attorney general's recommendation or Crump's ties to the review panel.
Aware that some might question giving the contract to Crump and Employers Resource, Landsidle had his staff prepare a March 13 memo justifying the decision. The document also notes that S.F. & C. failed to include audited financial information required in the bid specifications.
``If there's a question of judgment that I have to be reversed on or called on the carpet for, so be it,'' Landsidle said Friday. ``But my conscience is clear.'' by CNB