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News >  Idaho

Idaho loses Syringa Networks lawsuit

UPDATED: Tue., Nov. 11, 2014

BOISE – The $60 million contract for a statewide school broadband network – one of Idaho Gov. Butch Otter’s proudest achievements – was voided late Monday, after a judge ruled it was awarded illegally. The ruling leaves the fate of the five-year-old broadband and video-conferencing network in limbo, along with the tens of millions of dollars already spent on the project linking Idaho high schools, dubbed the Idaho Education Network. “Yesterday’s legal decision does not detract from the value of the IEN,” Otter said in a statement Tuesday. “I support the IEN and recognize the significance of this service for all of Idaho, especially our rural communities. I call upon all of the parties and stakeholders to commit to preserving this valuable service and unprecedented access to technology for Idaho’s students, teachers and communities while we work through the process.” Otter has steadfastly defended the contract for the past five years, even after the Idaho Supreme Court ruled against it in 2013; the contract was awarded by Otter’s best friend, Mike Gwartney, who at the time was serving as the director of his state Department of Administration. There were two bidders on the original $60 million contract: Education Networks of America, partnering with Syringa Networks; and Qwest, partnering with Verizon. Gwartney awarded the contract to both ENA and Qwest, with subsequent amendments dividing the work so all the parts that Syringa originally would have handled in its partnership with ENA – the technical network services, or “backbone” of the broadband network – instead would be done by Qwest. Syringa sued. Syringa charged an array of counts of wrongdoing against the state, including breach of contract, tortious interference, and improper influence. The district court initially dismissed all the counts, but Syringa appealed to the Idaho Supreme Court, which resurrected the case on just a single count: That the contract was awarded illegally, in violation of Idaho law. The Supreme Court ruled that by splitting up the duties after the contract was awarded, the state Department of Administration was “in effect, changing the RFP (request for proposals) after the bids were opened.” The Supreme Court sent the case back to the 4th District court, where the state has tried to fight it on multiple grounds, but Judge Patrick Owen found in favor of Syringa, in a ruling the state still could appeal again to the Idaho Supreme Court. Sen. Dean Cameron, R-Rupert, co-chairman of the Legislature’s joint budget committee, said, “It seems futile, if they’re going to appeal back to the same Supreme Court who essentially agreed with Syringa in the first place.” Cameron said lawmakers on the budget committee strongly urged the Department of Administration to settle the case, to avoid just this outcome. The case went to mediation last month, but state officials said they were outraged that Syringa asked for damages, starting with a $17 million request, later dropped to roughly $5 million. Otter said in a campaign statement Oct. 16 that Syringa has no right to any state payment. “It has no legitimate claim for monetary damages,” his statement said. Cameron said, “I don’t know whether there’s any way of settling it at this point or not. It’s why we were very direct … in encouraging a settlement to occur, because if the court ruled as it looked like they might and they did, the Idaho Education Network would certainly be in jeopardy. And for whatever reason, the Department of Administration did not see fit to heed that counsel.” House Speaker Scott Bedke, R-Oakley, said he’s hopeful of a “do-over” on the contract to allow the network to continue operating. “To the extent we’re culpable, we’ll shoulder our responsibilities, I believe, collectively as a state,” he said, “but that doesn’t diminish the fact that this is a worthy effort.” The state hired an outside lawyer, Merlyn Clark of Hawley Troxell, to represent it in the case; the Idaho Statesman reported last month that a public records request it filed showed the state has paid him more than $760,000 thus far. Both Clark and the Department of Administration have expressed high confidence for the past five years that the state would win the case. Current Administration Director Teresa Luna was so confident that when the federal government cut off e-rate payments, which come from a surcharge on telephones and were supposed to cover three-quarters of the cost of the IEN, in March of 2013 due to concerns about the lawsuit, she made up the difference with state funds, anticipating the federal money would show up eventually. She also didn’t inform lawmakers that in 2013, her department decided to extend the contract through 2019, promising another $10 million to Education Networks of America, even though the deal wasn’t yet up for renewal. Luna told lawmakers in February that she anticipated the early renewal would bring the state savings. ENA is well-connected in Idaho; it has donated $18,250 to Otter’s campaign, including $5,000 on Sept. 26 of this year, and in 2012, it hired a former Idaho Republican Party executive director and then-state official, Garry Lough, as its Idaho sales chief. The firm also was awarded a second multimillion-dollar contract in July of 2013 to provide WiFi networks in Idaho high schools; state Superintendent of Schools Tom Luna, Teresa Luna’s brother, awarded that contract. ENA also has contributed $6,000 to Luna’s campaign since 2009. But ENA and Qwest, now known as CenturyLink, could end up the biggest losers in the contract deal. The judge cited an Idaho law that says when a state contract is issued illegally, all money paid by the state under the contract “shall be repaid forthwith.” Spokesmen for both companies didn’t immediately respond to a request for comment on Tuesday. The federal e-rate funds that were paid to ENA before the cut-off in 2013, about $13.5 million, also likely will need to be repaid. Plus, the Otter Administration asked lawmakers to bail out the IEN last winter, to make up for the missing e-rate funds; the Legislature forked over $11.4 million in state tax funds, and has a pending request for another $2.19 million in January. All told, Idaho has spent more than $33 million on the IEN, and that’s not counting any federal e-rate funds, which the state doesn’t appropriate; the federal government pays that money directly to the project. The judge was highly critical of the state Department of Administration for continuing to push to keep the contract in place, even making amendments to it this year that it said undermined Syringa’s legal arguments. The department, the judge wrote, “refuses to acknowledge that its bid process in this case was and remains fatally flawed. Even after the Supreme Court decision, and despite further rulings from this court rejecting … post-appeal arguments, DOA (Department of Administration) continues to fund these contracts. DOA even tries to fix what cannot be fixed.” The judge wrote, “An agreement made in violation of the state’s procurement law cannot be fixed or cured. The award to ENA violates state procurement law, and as a result, is void.”
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