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The San Francisco Chronicle
Jan 24, 2005 - 01:00 AM

by TOM CHORNEAU, Associated Press Writer

Senators will probe contractor's past troubles, current problems

SACRAMENTO (AP) -- Concerned about a company's inability to deliver on promises to cut hundreds of millions of dollar from state spending -- and the firm's troubles elsewhere -- the chair of a state Senate oversight committee called Monday for hearings into the state's three-year deal with American Management Systems.

The review comes in response to press reports earlier this month about the company missing its savings goal and a letter from Treasurer Phil Angelides on Friday detailing the company's "failed" efforts on contracts in four other states and one with the federal government in recent years.

The company -- now known as CGI-AMS -- was hired last spring by the Schwarzenegger administration to start an aggressive new purchasing system that uses the state's huge buying power to save money.

Called "strategic sourcing," the program was supposed to save $96 million this fiscal year but after its slow start that figure was cut in half. The program is also a key part of Gov. Arnold Schwarzenegger's California Performance Review, a landmark plan aimed at making the state more efficient.

The Associated Press reported earlier this month that so far CGI-AMS, a contributor to Schwarzenegger's campaigns, has completed just one deal: a renegotiating of an office supply contract -- that is expected to save the state about $9 million through July 2006.

Last week, the AP also reported that CGI-AMS has hired a communications company part owned by Schwarzenegger's chief fund-raiser to help market the program to other state officials.

Sen. Liz Figueroa, D-Sunol, chairwoman of the Government Modernization, Efficiency and Accountability Committee, said Monday the relevant questions need to be answered.

"When a private vendor makes thousand of dollars in political contributions to the governor, promises to save the state taxpayers millions of dollars ... and then delivers just 10 percent of what was expected, Californians need to know how and why this happened," said Figueroa, who is leading the Legislature's examination of a variety of Schwarzenegger's proposals to reorganize state bureaucracy.

Along with its struggles with the California contract, officials in other states said contracts with CGI-AMS have also run into trouble.

CGI-AMS is facing a whistleblower lawsuit in an Ohio federal court over allegations they over-billed the state by $14 million.

Florida officials in November withdrew a $21 million contract with the firm after investigators found problems with the bid process and disclosure that two key state managers had ties to a member of the AMS board. In Iowa, lawmakers are concerned about an AMS computer contract that has doubled in cost since it was signed in 2002.

In recent years, AMS has settled multimillion dollar claims filed by the Federal Retirement Thrift Investment Board; the County of Fairfax, Va.; and the state of Mississippi.

Matt Bender, spokesman for the Department of General Services, could not immediately respond Monday but has said the state was aware of some of CGI-AMS' legal problems but still believes it's a "good company" capable of completing its contract.

"We don't select companies based on their press clippings," Bender said.

A spokeswoman CGI-AMS, Diane Roman Fusco, said legacy of problems at AMS represents only a small fraction of the successful business the company has completed over its long history.

"Our track record in government services is very strong, which is why we continue to earn impressive contracts," she said. "We have had some challenges, they are relatively few and we try to learn from them."

Fusco declined to discuss contracting problems in other states but said the decision by Florida officials to withdraw award of the family services contract had nothing to do with her company.

Angelides, a frequent critic of Schwarzenegger' spending priorities and a likely Democratic challenger for governor in 2006, said he was not only concerned about the company's performance to date -- but also it's "failed" efforts to complete projects in other states.

"With the dire fiscal woes the state is facing today, we must have the utmost confidence in our contractors are able to deliver on time, within budget and without favoritism," Angelides wrote in his letter to Figueroa.

CGI-AMS, which had never before handled a procurement contract like the one with the state, earns a share of savings based on a sliding scale of up to 10.5 percent over the three-year contract. But experts have questioned the administration's goal of squeezing 15 percent savings out of its purchase budget, saying even the best private sector systems rarely achieve as much as 18 percent. Most public institutions are lucky to get 10 percent savings, some have gotten only about 5 percent.

Indeed, in an effort to get more state officials to participation the company hired Wilson-Miller Communications earlier this month to help market the program. The firm is co-owned by Marty Wilson, is a top political adviser to Schwarzenegger and his main fund-raiser.
On the Net:

Senate Committee on Government Modernization, Efficiency and Accountability: 1/PROFILE.HTM

CGI-AMS Home page:

Governor's home page:

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