How Nevada lost millions in federal grant dollars from a lawsuit over a software contract
For more than two years, a six-figure contract to operate a statewide grant management system has been on ice amid a lawsuit charging that the administrator juiced the contract for a preferred vendor.
Although state lawmakers in 2017 approved $200,000 a year in new funding for a grant management software program — a system backers said could result in up to tens of millions of dollars in untapped federal funds — a lawsuit filed by a company that sought but didn’t receive the contract has stalled implementation of the system for the foreseeable future.
That company, Streamlink, prevailed in its lawsuit in September, with an administrative law judge finding that the head of the state’s grant management office based the contract on a proposal submitted by a preferred vendor that promised her professional opportunities and other benefits, while she submitted artificially low scores for competitors applying for the contract under the state’s competitive bid process.
The state has appealed and disputed the claims; oral arguments in District Court have been scheduled for next month. The litigation has meant a waste of not only the $400,000 in unused state dollars but also a possible loss of millions of dollars not tapped by the state over the last two years.
Grant management isn’t a typically hot-button issue, but concentrated efforts to secure federal grants and dollars by state governments can have potentially major effects on budgets. Federal dollars make up roughly 33 percent of Nevada’s yearly budget (roughly $9 billion), providing for services and programs without raising taxes or expending state revenues. Some estimates project Nevada is losing out on as much as $500 million a year in federal grant revenue, in large part because of the state government’s lack of programs and resources dedicated to obtaining federal grant dollars.
“We are so far behind other similar states, that we just have to get this stuff in place as fast as possible,” said John Ritter, chairman of the statewide grants advisory council. “Not having this grants management system in place is just delaying Nevada getting hundreds of millions of dollars a year in additional federal funding.”
Lawmakers, who for the most part were unaware of the lawsuit or declined to comment on it, nonetheless say they’re frustrated the money put up by the state has so far not resulted in a tangible result.
“It is disappointing,” said Democratic Sen. David Parks, who carried the 2011 bill to create the state’s grants management office. “My personal interest is that I would like to see a more extensive program operated by the state to acquire even greater amounts of money. When you compare us to states like New Mexico, they probably get three to four times as much federal funding as Nevada gets.”
Nevada and grants
The concept of federal grants typically evokes imagery of Medicaid, Medicare and other large federal government grant programs automatically dished out to states through a formula based on population.
But federal grants are much broader, and often crucial to cash-strapped state governments, local agencies, nonprofits and businesses while accounting for roughly a third of all state government revenues according to Census Bureau data. In total, the share of federal funding as a source of revenue for state governments has been climbing for years — in large part because of the expansion of Medicaid under the Affordable Care Act.
And though a 2018 report from the nonpartisan Guinn Center found federal money accounted for more than 34 percent of Nevada revenues for the 2017-2019 biennium, the state’s grant revenue per capita has consistently lagged behind other western states, often ranking among the lowest in the country. As of 2017, Nevada received an average of $1,475.78 in federal government grant dollars per capita — the 44th lowest of any state.
“I think who’s actually being hurt the most are Nevadans, because they are ultimately the recipients of programs and services that are beneficiaries of the grants,” said Meredith Levine, Director of Economic Policy at the nonpartisan Guinn Center. “The purpose of grants are to serve populations. To the extent that grants aren’t coming through, then we are not addressing the unmet needs of people who live in this state among certain populations and in certain communities.”
That doesn’t necessarily mean that Nevada is worse at grant management than states such as New Mexico, which took in $2,954.49 per capita in federal grants in 2017. Levine said that because many large federal programs are based on a formula that uses poverty levels and population, substantive differences in federal funding are largely the result of demographic trends.
But expanded Medicaid — which former Gov. Brian Sandoval agreed to implement in 2014 — inflates those numbers; with those dollars excluded, Nevada’s funds per capita for federal grants drops to $485.26, 49th lowest of all states. To Levine and others, that’s evidence that the state isn’t getting as much in federal grants as it theoretically could.
“To the extent that folks in the state would be resistant to any sort of tax increases, this is a way to get money,” she said. “It’s not free money, there’s no such thing as free, but this is a situation where we could be bringing in more money to the state to help support something where the general fund has to do a lot of the work.”
Lawmakers have been aware of the problem since at least 2011, when a bill by Parks creating a statewide grants management office was approved unanimously in the Senate and Assembly and signed into law by Sandoval. The office, which has five employees, acts as a statewide advisory clearinghouse for federal grants, either reviewing applications submitted by other agencies or entities or reaching out to them if it discovers a possible grant opportunity.
In 2015, legislators passed a bill creating the Nevada Advisory Council on Federal Assistance — an entity composed of lawmakers, head of the grants office and other appointees charged with studying and determining ways by which to obtain and maximize federal assistance, including grants.
Between legislative sessions, that advisory council listed as one of its top recommendations the creation of statewide grant management software. Such a system would replace the “ad hoc and complex” web of Excel spreadsheets currently in use, according to a description in the eventual request for proposal (RFP) for a grants management system.
Ritter, who chairs the advisory council, said the recommendation came out of the realization that neighboring states with higher reported federal grant revenue all used some sort of centralized tracking software.
“Every single one of the states that does significantly better than us has some sort of system with which grant officials, whether its in state agencies or municipalities or philanthropic agencies, they all have a way of seeing simply what’s going on in the grants world within their state; grant opportunities grant partnerships, active grants,” he said. “Often, states like ours need to collaborate on grants, and right now there’s just no way of knowing who’s working on what, what assets are available, what collaboration or coordination is possible.”
Such a system would be a boon to the state, Levine said, as the lack of any sort of centralized tracking system means there’s no way to quantify how much money the state could be losing out on through not applying for grants.
“There’s absolutely no way to know,” she said. “We just know that there are grants out there that we’re not going for or we’re not getting for whatever reason. If we don’t have tools to assess that, then we can’t even begin to know.”
At a budget committee hearing in the 2017 session, grants management office Director Connie Lucido told lawmakers that the office believed it could acquire a sufficient software program for $200,000 a year, which would help the state manage and track existing grants while having access to a centralized clearinghouse of grants that people, organizations and agencies in the state might be eligible to apply for but were not aware of.
“I would imagine we’re missing a lot of them,” she said at the time. “So this system would bring in those identified opportunities for agencies as well as our office to be able to look out.”
Lawmakers were enamored, especially by Lucido’s claim that a similar system in Arizona had identified more than $1 billion in potential lost revenue after it brought grant management software online. With little fuss, lawmakers approved the $200,000 per year for the office, giving it the go-ahead to contract with an outside firm and obtain the software for the state.
But for more than two years, litigation has delayed implementation of any such software — two additional years of money left on the table.
Unbeknownst to lawmakers and only revealed through records requests and court documents, Lucido had determined as early as 2016 that her preferred choice for a grant management software would come from a company called eCivis, which provides software for Arizona and other states.
In November and December of 2016, Lucido sent several emails seeking possible contracts with eCivis and another vendor, Streamlink, before the grants office began to pursue a formal competitive bidding process.
But Lucido’s opinion of Streamlink quickly soured; she later testified that the company was “deceitful” and had hired a lobbyist — Carrara Nevada’s Rocky Finseth — to “throw rocks at my budget.” Upon cross examination, she said she had “closed the book” on the company by April 2017. Finseth and other Carrara lobbyists did not speak during public budget hearings on the request in 2017, but had conversations with lawmakers about her description of the scope of the project compared to what Lucido had told them prior to the session.
In a later email to the CEO of eCivis on Aug. 22, 2017, she said in reference to Streamlink “no one in their right mind would ever do business with (your) competitor.”
During the pre-bid process and the actual preparation of the RFP, Lucido communicated frequently with key eCivis staff through text messages and over the phone, including conversations with eCivis Executive Vice President and COO Merril Oliver and Director of Government Solutions Tom Grimes.
In these conversations, an administrative judge determined Lucido was improperly offered professional perks or “things of value” that would stem from a contract with eCivis, including increased interactions with county governments and opportunities to sit on committees or a “more prominent presence” on federal issues in the state.
After the contract went out to bid in July 2017, both eCivis and Streamlink submitted bids. Like other competitive contracts put up for bid by the state, the request for proposal (RFP) process includes scoring certain aspects of each bid by a three-person committee. For this contract, the committee included Lucido, who recommended herself to serve on it given her experience with both companies.
During the week prior to the RFP being issued by the state, Lucido and Grimes exchanged multiple text messages. Both testified in court that they could not remember the content of text messages and had since deleted them, but the timing of the messages (revealed through a records request by Streamlink) raised concerns.
“Informal and not clearly identified communications during such a critical time in the preparation of a competitive bid are problematic,” the court wrote.
Purchasing Division head Jeff Haag testified during a 2018 administrative hearing that Lucido was “disappointed that we had to go to [request for proposal],” adding that “we’d been through a long process and you know, they felt pretty strongly that eCivis could, again, deliver on their technical requirements at a cost that they could accept, that met their budget limitations.”
Once the RFP was closed and bids were being evaluated, administrative court documents allege Lucido “minimized real concerns as to additional costs involving eCivis as to licensing yet continued to emphasize irrelevant pre-competition bid concerns as to Streamlink being able to comply with the budget set forth under [the RFP].”
Those assessments were then applied to Lucido’s scoring of each bid as an evaluator, where her scoring of StreamLink were found to be “inconsistent, arbitrary and capricious” by the administrative judge, who also said she was “willing to overlook key defects in eCivis’s response.”
Those defects include an alleged inability by eCivis to provide a system within the state’s $200,000 budget, largely because of the obfuscation of certain licensing fees related to an eCivis subcontractor, WizeHive. If those fees were added, the eCivis system would reportedly cost $360,000 for the number of individual licenses required by the state.
In 2017, Lucido told lawmakers that the initial projected cost for the software program was $2.5 million for a “top of the line” system, but that she determined that price tag “was not something we’d be able to pursue in our economic environment.”
Lucido told lawmakers that the much lower $200,000 price point would be enough to purchase “very robust systems,” with varying levels of the number of users who could access the software, functionality and other upgrades. It’s a point Ritter agreed with; saying that a lower price point would be an easier sell amid the fierce battle for state dollars that occurs every legislative session.
“I don’t remember a session where we had enough money,” he said. “So it’s necessary to get stuff done, at least in my experience, to try and find the best possible solution that is the most affordable, because otherwise it’s not just going to be funded.”
Additionally, the court found “problematic” aspects to the relationship between eCivis employees and Lucido. On the day the bid was opened, a high-ranking eCivis member— referred to as the “LeBron James of grant management” by a coworker — invited Lucido to speak on a grant-focused panel at a Nevada Association of Counties meeting later that year.
“The pursuit of such opportunities and networking as head of the Grants Office is well within Ms. Lucido’s job duties under regular circumstances,” the court wrote. “However, as the head of the using agency and a member of the Evaluation Committee, while a competitive bid was open and actively pending, is another matter.”
In September 2018, state appeals officer Rajinder Nielsen ultimately ruled in favor of Streamlink, arguing in a 45-page decision that not only had eCivis representatives “improperly involved themselves” in the bidding process, but that “no reasonable methodology” had been applied to Lucido’s bid scoring, “even when reviewing such applied methodology with the widest lens.”
These offenses were found to be violations of state law that govern the state’s purchasing contracts, and require the contract to be put out to bid again. But Nielsen’s decision also argued that this particular situation was unique to Lucido’s conduct as head of her department, and had no bearing on the conduct or procedures used by the Grants Office or Purchasing Division at large.
In a court filing submitted ahead of a District Court hearing this month, the state disputed these arguments nearly whole cloth, arguing — among other things — that Nielsen “acted in excess of authority, committed errors of law, and found against the Purchasing Division contrary to the evidence” in order to cancel a contract that was awarded according to the relevant state laws.
Key to the state’s argument is whether Nielsen had improperly relied on a formal discovery process — a process where both sides in a legal case have the opportunity to request evidence that would normally be unavailable to an administrative hearing without first being authorized.
It was this process that Nielsen used to show communication between Lucido and eCivis regarding “things of value,” a violation of NRS chapter 333. Such a violation would, crucially, require the perks offered to Lucido to be “things of value” and not, as the state argued, routine business.
The state also argued that Nielsen “glossed over” details of Streamlink’s application that would make the company unlikely to receive the contract. In its filing, it states that the company’s initial range of pricing for the software was closer to $2.5 million, and that the $200,000 contract would only result in a pilot program that covered a handful of state agencies, rather than the hundreds requested as part of the RFP. It also noted that the judge should have recused herself from the case, given that her ex-husband had a relationship with one of the attorneys for Streamlink.
For his part, StreamLink CEO Adam Roth told The Nevada Independent that from his perspective, the case has gone well — even with the state appeal.
“There doesn’t appear to be any new arguments being presented in the appeal, it appears to just be a rehash of the old arguments that had already been determined at the hearing officer level,” he said. “And the facts of the case, with those arguments, I think bore out an accurate decision.”
eCivis did not respond to a request for comment. The case in District Court is proceeding, and an oral argument date has been set in May. Lucido left the grant office in 2019, and was hired by the Department of Health and Human Services in January as Social Services Chief under the department’s community partnership and grants division. She did not return multiple calls for comment, and a DHHS spokeswoman said she would not be able to provide information about the case “while this matter is pending.”
Republican Sen. Pete Goicoechea, who served on the Advisory Council on Federal Assistance when it made the recommendation that the state pursue grants management software, said he never questioned or thought twice about Lucido’s conduct as a member of the board, but said the result of the initial court proceeding spoke for itself.
“Clearly she overstepped it, or there wouldn’t be a lawsuit that did prevail,” he said.
What comes next
Two years later, there’s still no timeline for when a grants management system might be in place. Deonne Contine, the new head of the state’s Department of Administration said in an email to The Nevada Independent that any plans for a new RFP related to the contract are on hold until the ongoing litigation is sorted out.
In the meantime, state lawmakers appear likely to reauthorize the $400,000 in funding for the grants management software. A budget subcommittee that met last month voted to recommend continuation of the funding, with some contingency language in case the state loses its case in court and is required to put the contract back out to bid.
In the meantime, Contine said that state agencies “continue to report a lack of grant application capacity and the same barriers to increasing grant funding in Nevada, which include duplicative financial reporting and a lack of affordable grant training resources.”
However, the state statute in question does provide for the Purchasing Division to cancel an RFP, back out of an awarded contract and ultimately re-issue an RFP. It’s happened at least once before in the last year, when the state canceled an RFP and contract for a dental benefits administrator in 2018.
Regardless, several measures aimed at improving the grant process are pending before state lawmakers. SB205, which is sponsored by Democratic Sen. Marilyn Dondero Loop, would create a pilot program allocating $2.5 million to the grant office over the next two fiscal years for use as a source of matching funds for any federal grant that requires a match. It’s designed to combat what the Guinn Center calls a “vicious circle” where agencies and nonprofits with tight budgets are unable to apply for grants given the lack of state authorization for matching grant funds. The bill has been exempted from legislative deadlines.
Another bill affecting the grant management process is SB206, a measure sponsored by Democratic Sen. Joyce Woodhouse that would amend the state’s current law requiring the Interim Finance Committee to grant approval before an agency accepts a grant. The bill was passed out of committee on Friday, surviving the deadline for bills to pass out of their first committee.
If approved, it would allow the committee to grant “provisional” approval for grants prior to them being awarded, and lower the amount of time the committee has to approve a bill from 45 to 30 days before it is automatically deemed approved.
Lawmakers may also decide to take up another top suggestion of the Nevada Advisory Council on Federal Assistance, the state board charged with studying ways to obtain and improve the state’s grant process.
In its 2018 annual report, the council recommended the ideas taken up in the form of SB205 and SB206, but also recommended that lawmakers amend language in budget bills requiring any state agency’s state funding be decreased to the extent that it receives other revenue sources, such as federal grants, during the two-year budget period.
“In effect, this means that securing new grant funding has no positive net benefit for an agency’s budget, and actually costs the agency through expenditure of precious staff time,” the report stated. “And the harm to agencies does not stop there – when the grant funding runs out the agency must submit a budget enhancement request just to get back to its pre-grant funding level.”
Although those changes may help, Goicoechea said the state’s grant office could stand to even double in size, given the vast scope and potential federal dollars not tapped by the state.
“We’re not dedicating near enough resources to it,” he said. “If we truly want some benefits. We’re dealing with it like we do with a lot of these agencies, boards and councils, the advisory board will meet every two or three months, and give them a little direction, and we’re not following through. We really need to get down and get dedicated.”