The administration of newly elected Alaska Governor Michael J. Dunleavy (R – Alaska) has made headlines by proposing huge cuts to the State budget, while at the same time unveiling a plan for back payments of Permanent Fund Dividends to Alaska residents. The question many are asking is: How is the Governor going to cut state spending while also cutting checks for record PFDs to every eligible Alaskan?
It appears that Peter Zuyus, Governor Dunleavy’s former head of the Office of Information Technology (OIT), which is a branch of the Department of Administration, found a controversial way to cut costs – just stop paying a State contractor for its work.
Dunleavy hired Peter T. Zuyus of Homer to become the State’s new Chief Information Officer (CIO) shortly after he took office in December. Zuyus was let go in early February, not long after Dunleavy appointed Kelly Tshibaka Commissioner of the Department of Administration. Tshibaka was appointed Commissioner after Jonathan Quick, Dunleavy’s first pick, withdrew after it was discovered he lied on his resume about his work history and education.
In May of 2018, OIT issued a request for proposal (RFP) seeking bidders to procure and deliver specified software and services to implement a cyber-security framework for the State. This was in response to a discovery by the former Chief Information Security Officer (CISO), Shannon Lawson, that there were some major security vulnerabilities in the State’s IT infrastructure. The State’s RFP dictated what products had to be procured and delivered, and bidders were specifically told that bids that offered different products or services would be deemed non-responsive and rejected by the State.
EVOTEK, Inc., an IT company based in California, submitted the highest scoring bid. They guaranteed they could acquire and deliver the products and services specified by the State. The State awarded the $11.6 million contract, over three years, to EVOTEK in August 2018.
During the fall of 2018, the State authorized EVOTEK to procure the products and services to fulfill the contract. Then something strange happened. The State put things on hold and began an investigation into EVOTEK and the procurement process. This was likely due to Alaska based IT companies, who have long enjoyed no-bid State IT contracts or contracts that were designed for them, that were upset an out of state vendor won the contract.
Several sources say the investigation was the result of a request from a legislator to the office of then Attorney General Jahna Lindemuth. After the investigation concluded, the State found that EVOTEK engaged in no wrongdoing. But it did not end there. The State attempted to rescind the award to EVOTEK and start the RFP process from scratch. It was later determined that this was not legal because one, EVOTEK won the RFP in a proper competitive bidding process, and two, any new bidders would be able to see the original bids, giving them an unfair competitive advantage by knowing exactly what EVOTEK bid during the last bidding process. EVOTEK did not learn of the investigation until months after it was concluded.
In late October 2018, after months of frustration with the State, EVOTEK was informed that they could begin fulfilling the contract. EVOTEK submitted bills to the State for the products and services, but the State stonewalled paying. Although the contract specifies that the State has 30 days from its receipt of an undisputed invoice to timely pay the bill, it has not paid most of what is owed to EVOTEK. Indeed, the State owes EVOTEK more than $3 million for products and services it directed EVOTEK to procure and deliver.
EVOTEK has retained outside counsel to try and collect the money it is owed. In fact, the bulk of the money is not owed directly to EVOTEK, it is owed to the vendors that the State specified in the RFP. In the IT industry, it is standard for IT companies to partner with vendors and sell their products. The IT companies make a small profit margin for partnering with and selling vendor products. EVOTEK is on the hook to these companies if the State does not pay.
As part of the contract EVOTEK negotiated with the State, all discounted contract pricing was locked in for the 3-year duration and was extended to other State entities. Access to the contract was posted on the State’s website when the contract was signed. At the end of January, in an apparent retaliatory effort for EVOTEK’s collection efforts, EVOTEK received a letter from OIT terminating their contract. Then, the contract pricing was removed from the State’s website. The State provided no comments or explanation as to why. This appears to be a way to remove EVOTEK’s ability to transact with other parts of the State that have interest in the cyber-security tools that are part of the contract.
Why won’t the State pay for things it specifically ordered and received from EVOTEK? It appears that the election of Governor Dunleavy plays a substantial role in the State’s refusal to pay. In late December 2018, Governor Dunleavy accepted the resignation of the Chief Information Security Officer, Shannon Lawson. Remember, Lawson was the person who originally identified the cyber-security vulnerabilities in the State IT infrastructure. According to statescoop.com, Lawson “held IT security positions with the U.S. Navy, the National Security Agency, Science Applications International Corporation, and spent nearly a decade with the Space and Naval Warfare Systems Command.” Lawson was asked, like other exempt state employees, to provide a resignation, and Governor Dunleavy accepted it.
EVOTEK President Jeff Klenner explained to the Alaska Landmine that repeated efforts over the past months to determine why OIT was not paying its bills to EVOTEK all ended with State employees admitting they did not have authority to authorize payment, and that Peter T. Zuyus was the person with that authority. EVOTEK’s repeated attempts to contact Mr. Zuyus were met with silence. He would not return a call or an email. Klenner said that he is now in contact with acting CIO, John Boucher, but the State has still not paid the overdue invoices. I have also reached out to multiple people in the Department of Administration to inquire why EVOTEK is not being paid. No one has returned my calls or given me an answer.
A number of these solutions are partially installed and currently protecting the State today. Despite not being paid, and despite receiving a formal letter from OIT to “cease all performance,” EVOTEK has requested the technology vendors continue to support the State while this gets sorted out. While EVOTEK does not control the vendors, if they were to cease performance of the cyber-security services, it could cause a massive disruption to the State.
EVOTEK is hopeful they will be paid now that Zuyus is gone and there is a new Commissioner. Word from inside the Department of Administration is that the new Commissioner was very displeased to find out that Zuyus was stonewalling payments owed to State contractors.
Hopefully, for Alaska residents and businesses, as well as out-of-state contractors, Zuyus’ departure will result in the State paying its bills. EVOTEK is hopeful that it will, but the State should not treat its debts to others as discretionary. This sends a bad message to anyone who is thinking of engaging in business with the State of Alaska. If Alaska is truly “Open for business,” something Governor Dunleavy has been saying since he was elected, the State will uphold its end of the contract and pay EVOTEK the money it owes them.