Vaunted savings not included in contract

The Jindal administration told legislators that a controversial $4.2 million contract will produce at least $500 million in savings, providing state government with an ample return on its investment.

Yet, the promised savings are not specified in the 26-page contract and attachment with New York-based Alvarez and Marsal. Commissioner of Administration Kristy Nichols’s press officer said Friday she misspoke last week when she told legislators that the $500 million minimum benchmark is in the original 80-page job description, called a Request for Proposal. The savings are not mentioned there either, or in the multi-page addendums and attachments.

The only time the much-discussed savings appear to crop up is in the cover letter that Alvarez and Marsal attached to its bid. Bill Roberti and David Javdan, managing directors for the global management firm, wrote they intended “to embed ourselves with staff to support the implementation of $500 million to $1 billion in net savings.”

Republican State Rep. Tim Burns, of Mandeville, said the Jindal administration should have included the savings target in the contract itself. Burns works as a tax attorney handling complicated legal language.

“We might need an amendment,” Burns said Friday. “If it’s not in there, it needs to be in there because it was represented to us.”

Citing a heavy meeting schedule, Nichols declined an interview request. Her spokesman, Greg Dupuis, said she misspoke when she said the $500 million benchmark was in the Request for Proposal, or RFP.

Dupuis said the cover letter is legally binding. “If (Alvarez and Marsal) does not deliver to our expectations, then they will not finish out the term of their contract,” he wrote in an email.

The contract runs for three years although Alvarez and Marsal expects to complete work within four months and receive $4.2 million in payment. Any work performed past April will require more money from the state.

The documents governing the firm’s work contain detailed language about confidentiality, personnel, tasks and state agency duties. They span hundreds of pages. The contract attachment itself takes three pages to lay out directions on “deliverables,” none of which mention identifying at least $500 million in savings.

Basically, Alvarez and Marsal must talk to state workers, look at existing projects and determine not just how the state can get more bang for its buck but how the state can do it for less.

Legislators reacted with criticism to the contract, resulting in a tense meeting earlier this week at the State Capitol. One member of the Louisiana House and Governmental Affairs Committee characterized the contract as “real disappointing.” Others questioned what Alvarez and Marsal will find that past efforts failed to uncover.

“Sometimes you need a fresh set of eyes,” Ruth Johnson, assistant commissioner for statewide services, told legislators. The overall goal, she said, is to free up state general fund dollars.

Alvarez and Marsal has a history of working for Louisiana’s state government. Last year, the firm assessed the state’s tax structure for the governor’s failed tax overhaul.

“We don’t just write reports — we are committed to work with you to prepare realistic ideas based on an independent review of the facts that will serve the Governor and Louisiana’s citizens. We will find the savings the State needs, but in a way that will help improve services, not diminish them,” Roberti and Javdan wrote in their cover letter.

Legislators’ opposition stems from the fact that state government struggles to make ends meet. Earlier this week, disappointing tax collections forced state officials to downgrade revenue in the state operating budget. Legislators also are skeptical that $500 million in savings can be found.

State Rep. Patricia Smith, D-Baton Rouge, said the Jindal administration should have performed the work with existing state employees. “Delay it, work with the employees you have and see how much money they can save,” she said.

Rep. Burns said the tension at the committee meeting stemmed from skepticism.

“I don’t know what it’s going to take to change my skepticism,” Burns said. “I hope I’m wrong. I hope they can find something.”

Senate President John Alario, R-Westwego, said the contract caught legislators by surprise because the Jindal administration neglected to be open about its plans. He said the contract needs to produce not just ideas but solutions.

“I’m hoping it will prove it was the right thing to do. It’s always good to get some unbiased opinion, and hopefully they’ll get that to us,” he said.