PROVIDENCE, R.I. (WPRI) — Republican lawmakers said the attorney general should get involved in examining a controversial state contract awarded to a newly formed consulting firm with connections to Gov. Dan McKee, as the issue was scrutinized for a second consecutive day at the State House.
The House Oversight Committee took its turn Wednesday in reviewing the $5.2 million contract awarded in June to ILO Group LLC. The consulting firm incorporated two days after Gov. Dan McKee took office in early March, and by June had secured a seven-figure contract despite bidding millions more than a rival consultant, WestEd, that had more than two decades of experience in Rhode Island.
House Oversight was one of two legislative committees that reviewed the ILO contract during hearings Wednesday, along with the Senate Finance Committee, whose members asked questions about ILO’s work as part of a broader discussion of education spending.
House Oversight Chairwoman Patricia Serpa, a longtime critic of expensive state contracts, expressed frustration with the circumstances surrounding the ILO contract, saying taxpayer money should not be used as a personal checkbook to reward friends or friends of friends.
“I don’t think you did anything illegal,” Serpa, D-West Warwick, told witnesses testifying on behalf of the McKee administration. “Do I think it was some bad judgment? I’ve got to tell you, yeah. I do. I’d be lying to say otherwise. There’s just no way I can put lipstick on this one.”
R.I. Department of Administration Director Jim Thorsen and his chief legal counsel, Daniel Majcher, represented the McKee administration for the second consecutive night after appearing at a contentious Senate Oversight hearing on Tuesday. The two men again defended the process surrounding the bid, arguing official procedures were followed properly and the bid review was comprehensive.
“Honestly, it’s the same process I’ve followed for 16 years,” Majcher said.
Thorsen also pointed out that the governor identified the contract as a priority almost immediately after he ascended to the state’s top job on March 2, saying McKee told him reopening schools safely in the fall and advancing municipal education programs — modeled on an initiative he created while mayor in Cumberland — were at the top of his agenda.
“When it comes to typical, the last year-and-a-half has been anything but typical with the pandemic,” Thorsen said. “There have been a number of situations where needs have arisen quickly without notice.”
But Democrats and Republicans on the oversight panel took issue with how the deal came together. ILO was founded by former employees of Chiefs for Change, a nonprofit led by McKee’s ally and campaign donor, Mike Magee.
On March 5, a day after ILO was incorporated and three days after McKee became governor, McKee held a Zoom meeting with Magee and Thorsen, along with the state’s head of purchasing — Nancy McIntyre — and McKee’s then-chief of staff, Tony Silva.
The idea to issue an RFP was spawned during the meeting and ILO was discussed, according to testimony. ILO’s co-founder and managing partner, Julia Rafal-Baer, was also invited to the meeting, but state officials say she didn’t attend. At the time, she worked for Magee as chief operating officer at Chiefs for Change.
“Mike Magee mentioned that she had left, or was leaving his firm,” Thorsen recalled of the Zoom meeting. “It was kind of confusing, to be honest with you, but she was forming some firm called ILO. That was the only mention.”
Rafal-Baer remained employed at Chiefs for Change throughout the bidding process, departing Magee’s nonprofit on June 28, after ILO was awarded the contract. The administration officials at the hearing said nothing indicated that ILO was given advance warning about the RFP going out, and they pointed out that Magee’s name was not mentioned on the firm’s bidding document.
But that defense failed to satisfy several lawmakers, who said they had a hard time believing Magee and Rafal-Baer didn’t talk about the upcoming bidding opportunity. And state Rep. Michael Chippendale, R-Foster, said it didn’t explain why a newly formed company that still hasn’t put together a full website was so prepared to submit a bid for a complicated state contract three weeks after incorporating.
“This brand-new company that didn’t even have time to write their hierarchy on the incorporation papers was able to respond to an RFP that just popped up,” Chippendale said. “That’s what we see … and it smells really, really bad.”
Serpa echoed the sentiment.
“Do you see why this is stinky?” she asked Thorsen and Majcher. “It’s stinky. It doesn’t smell good. I hate to say it.”
House Minority Leader Blake Filippi called for action, saying the ILO deal left the appearance of impropriety at the very least. In light of that concern, Filippi argued the Department of Administration should transmit all material and documents related to the deal to R.I. Attorney General Peter Neronha for a legal review.
“Something untoward happened,” said Filippi. He pointed to a state law enacted in 1989, during Gov. Ed DiPrete’s administration, that states “when for any reason collusion is suspected among any bidders or offerors, a written notice of the facts giving rise to the suspicion shall be transmitted to the attorney general.”
“The way I read the statute, I don’t think you even have discretion but to report,” said Filippi, a lawyer who is considering a run for governor next year.
State Rep. David Place, R-Burrillville, added that conversations among insiders could have led to an unfair advantage for ILO in the bidding process. To ignore that possibility, he said, the Department of Administration officials were assuming full responsibility.
“Even if it’s not impropriety, it definitely looks like it from the outside, and I would think you would want someone else to look at this right now,” Place said. “Get the attorney general involved.”
Majcher pushed back at the suggestion, saying he didn’t believe there was any collusion tied to the deal, and that it wasn’t abnormal for state agencies to have advance meetings with potential bidders to try and figure out what should go into a future work request.
Referring to allegations of collusion or impropriety, Majcher said, “There’s no indication that happened here.”
After the hearing, Filippi told Target 12 he believes the McKee administration has no choice but to involve the attorney general. He said he’s giving the governor and his aides the benefit of the doubt for now and will follow up with Thorsen to see what happens.
“It’s small-time garbage,” Filippi said of the ILO contract. “It’s clear this wasn’t a proper bidding process. And two days into your administration, you reward your friends? If that’s not the purpose, and your friends are involved, you better make sure everything is on the up-and-up. And it just wasn’t.”
In an email, Attorney General Neronha said his office would neither confirm nor deny the existence of any investigation, and any decision to embark on one would be “based on an evaluation of the initial facts developed, and whether those facts indicate a possibility that criminal conduct has occurred.”
“Generally speaking, under long-standing state and federal case law, public corruption cases require proof that a public official solicited and/or received a bribe or extorted a member of the public to receive a private benefit,” Neronha said. “It is also well settled under federal and state law that undisclosed conflicts of interest may not form the basis of a public corruption prosecution.”
The attorney general is already investigating McKee’s former chief of staff, Silva, who resigned in August amid a scandal over a wetlands development. That investigation was requested by the governor.
State Rep. Jason Knight, D-Barrington, pursued a different line of questioning, probing the close involvement of the governor’s senior staff in the procurement process that led to ILO’s multimillion-dollar award.
Emails obtained by Target 12 show members of the bid review team were communicating with Tony Afonso, the governor’s now-chief of staff, and Christine Lopes Metcalfe, then his special adviser on education, during the bidding process.
“I spoke with Tony Afonso and he asked that we work with you to develop a rough sizing of what we think the engagement would require to deliver on the Governor’s intent,” Thomas McCarthy, executive director of the state’s COVID-19 response team, wrote in an April 29 email sent to Lopes Metcalfe and others.
McCarthy was a member of the four-person review team that vetted the bids for the contract that ILO later received; Afonso and Lopes Metcalfe were not.
In a tense back-and-forth with the administration witnesses, Knight asked whether it was appropriate for Afonso to be communicating with the review team while the bidding was in progress. “They’re working with the review team to try and shape the scope, presumably,” he said.
Majcher said nothing was tailored to any individual bidder, but declined to comment specifically on McCarthy’s email. He said he’d seen the news coverage about the messages, but hadn’t read them himself.
“I don’t know the context of the email,” he said.
Even though ILO bid more than rival WestEd multiple times, the review team ultimately decided against giving the work to WestEd, instead recommending that the two companies be placed on a master price agreement, or MPA, and leaving it up to McKee’s office how big a contract to award each one.
As a result, McKee’s office was able to make deals directly with the two companies.
The governor’s office ultimately awarded ILO up to $5.2 million to focus on K-12 schools and the municipal learning programs. As Target 12 previously reported, ILO only ended up working with six of Rhode Island’s 36 local school districts on reopening, according to the Department of Education.
The municipal learning programs would essentially be mayor-led city or town offices that operate separately from traditional school departments. McKee and Magee created the state’s only such office in Cumberland in the late 2000s while McKee was the town’s mayor.
According to information presented to lawmakers Wednesday, the McKee administration expects to commit an additional $8 million from federal coronavirus relief funds to the rollout of municipal learning programs over the coming months, in addition to the money that ILO is receiving through its contract. The project is also slated to get $1.25 million under the Johnston Town Council’s deal with Amazon.com.
Separately, the governor’s office awarded ILO’s competitor — WestEd — a contract worth about $940,000 to help reopen higher education institutions during the pandemic. On Wednesday, however, lawmakers for the first time also raised questions about what exactly WestEd is doing under its contract.
At the oversight hearing, Serpa disclosed that she received a call from someone who said Rhode Island College had been “strongly encouraged to cooperate with WestEd” on the reopening of campus. Serpa said that wasn’t communicated to RIC officials until September, “when the campus already opened.”
At the Senate Finance hearing, a senior RIC official — former state Rep. Ed Pacheco — suggested there had been little engagement between WestEd and RIC as the college prepared to reopen this fall.
“Rhode Island College was asked and requested to meet with WestEd towards the end of August, early Spetmeber, with regards to our school reopening plan for the fall, and we met with WestEd at that point in time,” Pacheco said, adding that WestEd gave “feedback” and “positive reinforcement.”
State Rep. June Speakman noted that WestEd’s contract with the state was expanded last month to include assisting RIC with enrollment strategy. Pacheco told the Senate panel that RIC officials and WestEd have “had preliminary conversations about the prospect of some data analysis regarding enrollment trends specific to Rhode Island College, but no further conversations at this point.”
The University of Rhode Island’s vice president of administration and finance, Abigail Rider, appeared bewildered when state Sen. Lou DiPalma asked her to describe how WestEd has been assisting URI to fulfill its state contract obligations.
“To my knowledge they’re not working with us,” Rider said. “I’m not aware of it. I will ask, I can double check, but I don’t believe that we have been involved in work with them.”
DiPalma went on to spell out “WestEd” so Rider could write down the consulting firm’s name.
Amy Kempe, a spokesperson for the Community College of Rhode Island, said CCRI also “has had no contact with WestEd.”
Apart from the ILO and WestEd contracts, Serpa additionally questioned the witnesses about a Target 12 report on Saturday that the McKee administration has hired former Cranston Mayor Allan Fung as a consultant to provide legal services around the spending of American Rescue Plan Act money. Fung, now a lawyer in private practice, has a contract capped at $145,000 through June 30.
“Who hired Mr. Fung? Who called him, or emailed him, and said, ‘We’ve got this money, we need legal counsel, why don’t you take the job?'” Serpa asked, while emphasizing that she was not criticizing the former mayor himself.
Expressing concern about how federal coronavirus funds are being spent overall, Serpa said, “This is not DOA’s and it’s not the governor’s checkbook.”
The oversight hearing lasted about three hours. In an indication that legislative scrutiny of the ILO contract might not be over, Serpa said she plans to have a follow-up hearing to get at some of the unanswered questions.
At one point during the hearing, Filippi asked Thorsen to look back and consider what they might have done differently, especially knowing what they know now. Thorsen said he might have advised the governor not to have Magee participate on the Zoom call about a future RFP involving one of his business associates.
Thorsen also said he has asked McKee himself what they might have done differently.
“He said if he knew this then, he’d consider going out for a single source,” Thorsen said of the governor, referencing a separate bidding process that allows the state to give contracts to companies without a competitive bidding process — a process that became more popular during the pandemic with a state of emergency in place.
But, Thorsen added, “I wouldn’t recommend that.”
On Thursday, McKee press secretary Alana O’Hare issued a statement arguing the legislative hearings had “made it clear that the procurement process was followed” in awarding the ILO contract.
O’Hare said the governor expects ILO to bill the state for less than the $5.1 million maximum allowed under the deal, and she said Magee was a volunteer on the governor’s transition team who “has no past or current financial interest or management role in ILO Group.”
“The governor is focused on maximizing the value that Rhode Island receives from this contract, which will ultimately help students throughout Rhode Island,” she said, adding, “We thank the House and Senate for the opportunity to present the facts. Now, the work on behalf of our students continues.”
Ted Nesi (email@example.com) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram
Tim White contributed to this report.