Questionable Texas contract deal was years in the making


While he was brokering a multimillion-dollar state contract for Austin technology company 21CT, then-state health official Jack Stick was promoting 21CT’s software to other states, assisting the company’s growth plans and seemed poised to take an executive position with the firm, a former 21CT lobbyist told the American-Statesman.

“They thought that he was going to come over and run it, make it big, take it public,” said lobbyist James Frinzi, who is also Stick’s one-time business partner and who was fired by 21CT last week.

Stick denied Frinzi’s account in an email to the Statesman on Friday. Irene Williams, chief executive officer of 21CT, also disputed Frinzi’s comments.

“I have never had a conversation with Irene Williams, or anyone else at 21CT, about becoming any kind of an employee there, let alone an executive,” Stick said. “I have therefore never had a conversation with Irene or anyone else about a salary. There was no quid pro quo between 21CT and me related to their contract.”

An audio recording of Stick speaking about the company at a staff meeting, as well as the Statesman’s review of three years of Stick’s travel records and state calendar, indicate his relationship with 21CT goes back to the early days of his state job. Those documents show Stick met with 21CT executives more than 40 times, including for at least one sales pitch meeting with a potential 21CT client.

>>Click here to listen to audio of Jack Stick talking about 21CT

Stick’s actions at the health agency are now the focus of a criminal inquiry after a Statesman investigation raised questions about his role in steering a $20 million, no-bid software deal to 21CT while he was the deputy inspector general for the state Health and Human Services Commission. Stick — who had since been promoted to the commission’s top lawyer — resigned on Dec. 12 after state officials began questioning the arrangement. On that same day, state officials canceled a pending $90 million contract extension with 21CT.

On Friday, responding to calls from state lawmakers for official inquiries into the deal, State Auditor John Keel announced he would look into the matter and work alongside investigators from the Travis County district attorney office’s Public Integrity Unit, which investigates complaints of ethics violations and public corruption across Texas.

Inspector General Doug Wilson — who signed off on the 21CT deal — resigned Friday at the request of Gov. Rick Perry. The governor had “lost confidence in Wilson’s ability to carry out the important oversight responsibilities of this office,” Perry’s spokeswoman said.

Frinzi spoke for more than two hours with the Statesman, detailing conversations he had with Stick and Williams during the 11 months he worked as the company’s lobbyist. He said he was never told directly that Stick would eventually help run the business, but Frinzi said Stick was mentioned as a possible future top executive at the company.

“I remember being in the conference room, and she said, ‘What do you think about Jack?’ I was asked by her casually what my thoughts were of him running the company,” Frinzi said, adding this conversation with Williams occurred at 21CT headquarters in the spring.

“My impression was always that he was going to be the COO (chief operating officer) reporting to her,” he said.

>>Click here to explore an interactive timeline of events

A late entry

For years, the inspector general’s office wanted new technology to help investigators track down Medicaid fraud, something that would analyze disparate sets of data to find connections, patterns and outliers.

Because Medicaid data are voluminous, complicated and messy, a tried-and-true solution seemed elusive even as Texas officials began to ask data analytics companies to revolutionize such investigations.

In 2010, the agency began looking for companies that fit the bill. Ultimately, the state looked to two tech giants with experience in data analytics: SAS and LexisNexis. Both companies analyzed sample Medicaid data, and worked on so-called proofs of concept — plans detailing how a company believes it can do a job.

As those conversations continued into 2011, a new player emerged: 21CT, a cybersecurity software company.

The Austin firm had no experience with Medicaid, nor was it eligible to compete for the type of lucrative contract it would land in Texas. But the company quickly became the front-runner in the competition to secure a $20 million deal with the state.

The company’s late entry into the race for the contract occurred shortly after Stick’s arrival as deputy inspector general in June 2011.

Stick’s official calendar showed a 21/2-hour meeting in late July with Williams, the first of dozens of meetings he had with company officials, according to Stick’s mileage records and calendar obtained by the Statesman through the Texas Public Information Act.

About four months into his tenure, Stick held a conference call with his employees at the inspector general’s office. The Statesman obtained an undated audio recording of that meeting in which Stick says several times that he has been on the job for four months, which would likely put the meeting sometime in October 2011.

In that two-hour meeting, Stick doesn’t name 21CT, but he repeatedly praises cybersecurity software the company sold to Lackland Air Force Base in San Antonio — a cybersecurity job unrelated to Medicaid. Stick told his employees that the new technology would be up and running “no sooner than four weeks but probably no later than shortly after the beginning of the new year.”

The company, he said, “wants to work with us and is making this really affordable for us.”

Stick also touted the company’s technology at industry conferences, and in March 2012, Stick touted 21CT’s technology in a webinar to the National Conference of State Legislatures. In August that year, the Health and Human Services Commission asked the federal Centers for Medicare and Medicaid Services to pay for part of the initial $20 million contract.

In September and October 2012, SAS and LexisNexis — unaware the deal had already been brokered with 21CT — presented their proposed plans to Stick and other officials.

“We never had a chance,” one person affiliated with SAS told the Statesman.

This month, as the newspaper asked questions of state officials about the 21CT contract, the state canceled all deals with the company, acknowledging 21CT had been held to a lesser standard than its competitors when it wasn’t asked to analyze the same data required of SAS and LexisNexis.

Texas opens the door

Frinzi said he was fired as 21CT’s lobbyist on Tuesday, as the company was facing increasing public scrutiny of its deal with Texas and following the announcement that its $90 million contract extension had been revoked.

Frinzi says he first heard about 21CT in 2013 while lobbying in Florida, where the company was battling for a state contract against the larger SAS.

He saw opportunity and offered his services to win the Florida contract, he said. Although 21CT lost that deal, he was hired by 21CT early this year.

Frinzi is registered as the company’s lobbyist in Texas, but he only lobbied for the company in Oklahoma, he said.

As the company’s lobbyist, Frinzi says he played a key role in plans to expand 21CT, which was well positioned to sell to other states, at premium rates, with little or no competition.

It could do so because Stick and Williams had brokered the deals through a Texas program that allows governmental entities from all 50 states — from tiny school boards to massive bureaucracies — to buy goods and services without a competitive bidding process.

The so-called cooperative contract 21CT had obtained through the Texas Department of Information Resources was, in essence, a passport to a fortune, Frinzi said, because with that contract the company could easily secure dozens of deals across the country.

That was a key component for Stick’s plans for the company, Frinzi said.

“It was always coming through questions,” Frinzi said of his conversations with Stick about 21CT’s future. “What if we got Illinois? And Wisconsin? How big would that be? You could tell he was doing the math in his head.”

“I know he wanted to get Oklahoma, Illinois and Missouri and had put thought into it,” Frinzi said.

The Department of Information Resources — designed to make typically small-scale technology purchases efficient and less expensive by leveraging Texas’ buying power — essentially assigns generic contracts with vendors that it vets. In the case of 21CT, that generic contract provided no information specific to the company’s product, services or prices.

All of those details were hashed out between the Office of Inspector General and the company, records show. Once an agency agrees to deal with a vendor, as was the case with 21CT, that agency simply submits a purchase order through the purchasing program, and the state pays the bill.

For public entities outside the state, there is an application process, but, once approved, the process is the same. So far, entities in 31 states have taken advantage of the program, records show. In total, the program has managed more than 750 such contracts and $2 billion in purchases.

As for 21CT, “they got into the DIR without the professional vetting process,” Frinzi said, “and it opened the door to sell to 20 other states without competition.”

A close relationship

Stick’s travel records, work calendar and the audio-recorded meeting with inspector general employees indicate that Stick has maintained a relationship with 21CT for at least three years.

Among the dozens of visits to 21CT’s West Austin office, Stick met with company officials once to prepare for a sales meeting with Florida officials and another time to help the company demonstrate the software to the officials.

“Florida came to see a demo of the system, and he was there to assist and answer questions,” commission spokeswoman Linda Edwards Gockel said. “That’s typical when a company demos a tool it’s using in one state for another state.”

Frinzi, unaware of those travel records, said he knew Stick was involved as 21CT tried to sell its software to Florida.

“He went to sales pitches,” Frinzi said.

In the conference call with his staff in late 2011 — before other companies had finished making the case for their own products — Stick touted 21CT’s technology, saying that “this is the stuff that CIA, NSA use.” With it, he said, investigators would be able to spot fraud that they might otherwise have missed.

“You’ll be able to do it, and I’m not exaggerating, literally in minutes,” he told his investigators.

Former inspector general manager Albert Olguin, who attended that meeting, said he and other staffers left excited and hoping it wouldn’t be long before they had access to the new technology, he said.

“We thought, ‘Well shoot, he’s really giving us something, he’s giving us something big,’” he said.

Olguin was recently fired by the agency after officials said he gave an inaccurate job reference for a former employee. Olguin disputes that and has filed an abuse of official capacity complaint against Stick with the district attorney’s Public Integrity Unit.

Serious challenges, including faulty data and underdeveloped software, would later be downplayed as the company and state officials presented the program as an unprecedented success.

Stick said in the 2011 conference call that the state would apply for a grant from the federal Food and Nutrition Service to pay for the technology and indicated that the Office of Inspector General was a shoo-in for the money because the federal agency was serious about tackling food stamp fraud.

Meanwhile, Stick said, one state employee had already spoken to Food and Nutrition Service officials about the proposed project.

“We have somebody inside HHSC who is well connected with FNS who has had discussions with them, and they have said ‘Send us the proposal and we’ll send you the money,’” he said in the recording. “Can something go wrong? Yes. If it goes wrong, we’ll still get the software, we just gotta figure out another place to find the money for it. But we will get the software.”

In that 2011 meeting, Stick said he planned to send a proposal to purchase the software to the executive commissioner of Health and Human Services. Stick hoped to meet with him within five days.

Frequent visits

Thomas Suehs, who describes Stick as a friend, was the executive commissioner at that time. Suehs says he has no memory of any such proposal or meeting about 21CT or anything about the company in general. Many firms approached the commission with analytic tools for fraud prevention, he said. His normal procedure was to refer companies to the agency’s general counsel, Suehs said.

“I always made it clear after a proof of concept, any services purchased would be under an open procurement,” Suehs said. “I have no idea if that is what 21CT did.”

After the Stick’s July 2011 meeting with Williams, travel records and entries in his work calendar show he continued to have frequent contact with 21CT. Between summer 2011 and March 2012, before 21CT was eligible for the contract, Stick met with the company at least six times.

During that same time period, Stick’s calendar shows he met one time with SAS, one of 21CT’s competitors; it’s unclear if Stick had additional meetings with SAS or any other companies competing for the contract.

Stick’s boss, Wilson, knew that Stick was meeting with potential vendors, spokeswoman Edwards Gockel said. Wilson was also meeting with companies, she added.

Wilson didn’t know that Stick was meeting so regularly with 21CT, the commission’s communications director, Stephanie Goodman, said. But the fact that Stick continued to work closely with 21CT over the years isn’t unusual, she said.

“That’s typical for a project of this size, and those meetings are led by the program staff that has the lead on the project,” Goodman said. “In this case, that was OIG.”

There is no doubt Stick played a leading role in brokering the agency’s deals with 21CT.

But when staffers asked him in that 2011 meeting how the state’s partnership with 21CT would work — or not work — Stick said he didn’t want to get bogged down in the particulars of the deal.

“We’ll work out the details,” he said, “and I’m not really going to be part of that process.”



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