Print

Email story

Comment

Letter to the editor

Bay Pines system draws subpoenas

Officials say two federal agencies have opened criminal and civil investigations into the failed computer system.

By PAUL DE LA GARZA and JONI JAMES
Published December 22, 2004

ST. PETERSBURG - Two federal agencies have begun criminal and civil investigations into the controversial computer system at Bay Pines VA Medical Center, officials said Tuesday.

As part of the investigations, federal prosecutors have issued two subpoenas to technology giant BearingPoint, which built the troubled Core Financial and Logistics System.

Known as CoreFLS, the system failed its pilot phase at Bay Pines and became the subject of federal inquiries and congressional hearings.

BearingPoint stressed in a statement Tuesday that "the government has neither identified nor made any allegations or claims of criminal conduct pertaining to BearingPoint."

Officials with the two federal agencies, the Justice Department and the Veterans Affairs' office of inspector general, declined to discuss details of the separate investigations.

"One deals with allegations involving criminal activity, the other one involves matters of civil litigation, basically involving money," said Jon Wooditch, spokesman for the VA inspector general.

Wooditch said any evidence of criminal activity is referred to federal prosecutors.

"At that point, they will look at our evidence, and they take over the case," Wooditch said. "But essentially, we are the investigative arm of that case."

The U.S. Attorney's Office in Tampa declined comment. Cynthia Church, spokeswoman for VA Secretary Anthony Principi, referred inquiries to Wooditch.

The latest developments came to light in a BearingPoint filing last week with the Securities and Exchange Commission.

In the filing, BearingPoint noted an ongoing investigation by the VA inspector general and by the U.S. Attorney for the Central District of Florida.

BearingPoint said it had been issued two subpoenas by federal prosecutors "seeking the production of documents relating to the CoreFLS project," and that it had fully complied.

In an e-mail to the St. Petersburg Times, BearingPoint spokesman John Schneidawind said the investigation was in the early stages.

"We've also been advised that this is a review of the entire project and it does not single out BearingPoint," he said.

In an earlier audit of CoreFLS, the VA inspector general said BearingPoint ran up costs by using questionable business practices.

Investigators said VA managers gave the contractor a virtual "blank check" by failing to monitor the project properly. As a result, a $750,165 work order to the company in 1999 grew into a $116.5-million pay day with no competition.

At a news conference in August, Principi accused BearingPoint of violating the public's trust.

Principi pulled the plug on the Bay Pines pilot project in July after experts concluded the computer system did not work. Installed in October 2003, the system led to surgery cancellations and accounting irregularities.

In early December, when the VA killed the entire CoreFLS project, it had cost taxpayers close to $300-million and shattered countless careers.

Schneidawind said BearingPoint thought it had complied with the CoreFLS contract, and that the system exceeded VA requirements.

But for BearingPoint, formerly KPMG, 2004 has not been a banner year.

The company enjoyed some success, both at home and abroad.

In September, it signed a contract potentially worth $229-million with the Department of Homeland Security.

The contract reflects BearingPoint's growing reliance on government work, as its commercial sector struggles. Analysts consider the company "a player" in the lucrative world of federal contracts, and say it delivers a good product.

The Homeland Security contract is similar to the work the company did at Bay Pines.

But fallout from CoreFLS is taking a toll:

As the VA prepares to begin a new round of planning and testing to replace the trial computer system, BearingPoint will not be involved.

U.S. Sen. Bill Nelson is exploring the possibility of having the company banned from getting new federal contracts.

Last month, Randolph Blazer resigned abruptly as chief executive and Robert Falcone, chief financial officer, said he would retire early.

In the SEC filing, the company also said it had received a subpoena from a federal grand jury in California investigating contracts dating to 1998.

"Is it bad luck or not? I don't know," said analyst Joseph Vafi, who monitors BearingPoint for Jefferies & Co. "There's just a string of negative business challenges the company's facing consecutively."

In Florida, Bay Pines has not been the only setback for BearingPoint.

The company has come under fire in Tallahassee, where state officials in September canceled a $123-million technology contract with the firm after questions arose about how the contract was awarded.

The Florida Department of Law Enforcement is investigating.

On Tuesday, state Senate Democrats implored the governor to stop awarding new contracts with BearingPoint and other vendors under scrutiny.

The Department of Elder Affairs is currently negotiating an $800,000 contract with BearingPoint to create a Web-based system for its senior services.

But officials with the Department of Management Services, which oversees state contracting, said no evidence has emerged that would allow BearingPoint to be placed on the state's "suspended vendors" list because the FDLE investigation is incomplete.

"Innocent until proven guilty," said DMS spokesman John Kuczwanksi.

Even so, the company has been taking a beating on Wall Street.

Analysts see Nelson's push to ban the company from new federal contracts as a long shot. But, taken with other developments, they say, it bears watching.

Vafi, the BearingPoint analyst, says he is more concerned with the company's commercial ventures than its performance in the government sector.

Not only must BearingPoint contend with a soft market for information systems in the private sector, it also must compete with cheap foreign competition from countries such as India.

"If there are increased investigations or challenges stemming from things like the VA system they've worked on," Vafi said, "that could make an outlook in the federal business, which looks pretty good, to be scaled back somewhat."

David Garrity, an analyst with Caris & Co., said the departure of Blazer and Falcone, problems with government contracts and BearingPoint's performance overseas are causes for concern.

"All of this has bearing on the company's ability to pursue contracts, not only with public sector clients but with others. And so it's becoming a bit of a distress situation," Garrity said.

"Has there been any good that's come out of all this? I don't know," Garrity said. "It's certainly a business where people should be able to deliver, and if those promises can't be kept, there should be accountability."

Paul de la Garza can be reached at delagarza@sptimes.com or 813 226-3432.

[Last modified December 22, 2004, 00:31:18]