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Users will pay fees for sole-source services contract

By   /   April 4, 2013  /   5 Comments

By Melissa Daniels | PA Independent

HARRISBURG — Pennsylvania teamed up with a private company to revamp and manage its official websites, promising the latest and greatest advances over its own old technology — and it won’t cost the state a dime.

Instead, residents and businesses using online government services will cover the bill.

Last fall, Pennsylvania entered a sole source contract with NIC USA, an “eGovernment” services firm. It will operate Pennsylvania’s entire online system, from page design to online transactions, and from customer support to hardware upgrades.

NIC, which calls itself “the people behind eGovernment,” creates and maintains online services for more than 3,500 governmental bodies, including 28 other states.

The state pays NIC nothing out of its own budget. Instead, the site work gets funded by adding “convenience fees” to certain online transactions residents or businesses might complete, like a license renewal.

This self-funded model spares the state from spending up front on expensive redesigns, system upgrades or app development. But the contract does not have a cap on what fees might be for users, meaning there’s no limit to how much could be assessed.

One of the first fees, on the Pennsylvania Department of Transportation website, is a $2 fee on a $5 charge of obtaining motor vehicle records online. Such records are often obtained by insurance companies researching policies.

At least one state lawmaker raised questions about the arrangement.

State Rep. Robert Matzie, D-Beaver, expressed his concerns about NIC in a letter to Attorney General Kathleen Kane and Auditor General Eugene DePasquale. He protested the fact it was a sole source contract, meaning there was no competitive bid process.

MATZIE: The Beaver County lawmaker saw red flags within the state's new eGovernment services contract.

MATZIE: The Beaver County lawmaker saw red flags within the state’s new eGovernment services contract.

“It shouldn’t have been done without an RFP (request for proposals) to see what other companies could’ve provided,” Matzie said.

NIC provides all website design, development, services and maintenance, managed through a Harrisburg-based subsidiary called Pennsylvania Interactive, LLC. Because there is no other company that provides all these services under one umbrella, the state deemed a competitive bid process unnecessary, according to the contract summary.

But NIC’s own filings with the Securities and Exchange Commission seem to dispute that point, as they attest to “intense competition” in their industry.

The filing, from late February, says NIC faces competition from government-managed services, system integrators like CGI and Unisys and developers like Microsoft and Oracle.

Beyond the nature of the contract, Matzie is concerned the executive branch is overstepping its boundaries to set fees, especially without a maximum limit.

Matzie plans to sponsor a bill that would require any Internet fees to be approved by the General Assembly. He said lawmakers have not authorized the executive branch to place new fees on all web transactions, which has been done in the past for specific agencies.

“It’s still raising revenue from taxpayers,” he said, “whether it’s business-to-business or ends up being folks on the street.”

The NIC contract is good for five years, with a renewal option to extend through December 2022. NIC expects to earn up to $7.5 million in 2013 off of Pennsylvania, according to a investor call transcript.

Dan Egan, spokesman for the Office of Administration, said the NIC contract was precipitated by multiple issues with the current system. The state was faced with a need to upgrade its server by 2015.

Pennsylvania also pays more than $1 million annually to maintain software that will expire in 2017, when the state would have to find a new vendor.

And, the current portal is plagued with issues over search features and mobile viewing, Egan said. NIC provided a “very attractive” solution that does not involve turning to the tight state budget for funding, he said.

“No one company does everything that NIC does and can do in a way that isn’t going to cost us tens of millions of dollars,” Egan said.

Before the contract was signed, the state put the procurement on its website, and offered a 10-day comment period where no other vendors reached out to the state, Egan said. It was also approved by the Office of the Attorney General, like any other state contract.

The state researched NIC with an outside research firm and contacted other states who use its services.

“None of those states who’ve ever contracted with them have left,” Egan said. “It’s because they like the service and they like what they get from the company.”

Angela Skinner, director of communications for NIC, said NIC is “comfortable with the sole source procurement,” given the commonwealth’s research, legal justification and the public comment period.

More than 75 percent of the services that NIC has developed are business-to-government services. That includes transactions like filing reports, renewing licenses or requesting permits.

And a majority of the services, she said, are “free.” Any fees are set and approved by state officials.

Egan said the state expects to keep about two-thirds of transactions free, while a third may have some kind of “convenience charge.”

NIC fees typically range between $1 to 5 per transaction.

Right now, state agencies are still figuring out what transactions they might introduce to their websites, as NIC has thousands of existing applications to choose from. But the state hopes to “dramatically expand” the amount of services available online, Egan said.

“It’s how people expect to get things these days,” he said.

Egan compared the fee to what a consumer might pay for having express delivery to their home – the charge is there for the extra convenience.

“There will still be a choice,” he said. “If you still want to walk into a government office or lick a stamp or do what the old process was, it will remain available to you without the convenience charge. But if you want to get online, get it faster, get it more conveniently, that’s what it’s there for.”

Contact Melissa Daniels at [email protected]


Melissa formerly served as staff reporter for Watchdog.org.